Cheeky,
How's it going?
I don't think these guys are bears at all. Maybe some of them are, but the vast majority are usually very long term, buy-and-hold types. I know for sure that Perritt is a long term guy (usually small caps) because I've read some of his writings, including at least one book.
What's really being said is that there is a disconnect between these momo tech stocks (and yes, the internuts are among them) and their perceived value and subsequent market valuations.
Let me use the most obvious, extreme example that I can think of, which is AMZN. They have the fastest cash burn rate of any major stock in history (that I know of). They pass on making a profit in favor of building up a clientele. Sooner or later one of two things will happen: #1) they run out of money and go belly up; or #2) they change the existing business model in order to avoid #1...
Sooner or later they have to make a profit. The well from which they draw their working capital is not bottomless. There is a finite lower limit at which point investors (or whomever) will no longer fund a losing venture. No one can predict when that point will be reached, but I suspect we're much closer to it now than we've ever been in the past. When (and if) that point is reached, the stock will plummet, no question about it.
If you go back through stock history over the past 10 year or 25 year or 50 year period, you'll find that eventually all stocks come to a reasonably predictable ratio between the price per share and the earnings per share. Sometimes the market will stray and assign higher or lower multiples for a variety of perceived reasons, but eventually all stocks return to a normal valuation (which varies by industry, sector, etc...). This is commonly called the P/E ratio and all successful stocks throughout market history have had a definable and somewhat predictable P/E ratio. If a stock has no earnings, by default it has no P/E ratio. No P/E ratio for too long a given period of time and the stock price will eventually go to zero.
The same line of reasoning applies to the other overvalued stocks that we currently see in our markets. Eventually, either earnings must increase to support the current valuations or the price must decrease to bear a reasonable relationship to the earnings.
Simply put, that is the disagreement between the bears and the bulls in a nutshell. Bulls maintain earnings will increase enough to maintain the current valuations, and the bears say no, won't happen and therefore the price must drop.
Okay? Take your weapon in your right hand; take twenty paces and turn around... <g>
KJC |
