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Technology Stocks : Amazon.com, Inc. (AMZN)
AMZN 244.41+0.6%Nov 7 9:30 AM EST
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To: Danny who wrote (110446)10/13/2000 5:35:07 PM
From: GST  Read Replies (2) of 164684
 
Danny: I don't expect to see 2000, but I do not see any reasoning behind your statement. In the event of a recession, earnings will become more important. Those companies with poor earnings prospects get completely trashed -- and there are some big companies out there with little to show in earnings. Companies that do have earnings will have lower earnings and slower growth rates -- a double whammy. Say, for example, a company is trading at 50 times earnings of $1 with an earnings growth rate of 25% per year. Then the earnings growth slows down and earnings drop in a recession to $.50. There would most likely be a multiple contraction of (for example) 50%, which, combined with the drop in actual earnings, would take the stock price from 50x$1=$50, to 25x$.50= $12.50. Perhaps this is news to you? If this reflects the "average" Nasdaq company, and it might, then we would drop from 3200 down to 1000. Again, this is not a prediction. But there is nothing in my mind which suggest this is not entirely within the realm of the possible. There is nothing crazy about talking about this as a real possibility. This is what the Nasdaq would look like in a recession. BTW, a war in the middle east and a spike in oil prices would vastly increase the odds of this scenario. We are not our of those woods just yet. The oil prices we have now are causing us to skirt the abyss -- good luck.
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