Tulipomania Blowoff Contest: Why and When will it end? Message Board

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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end?

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Jun 26 5:00 PM EST

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To: Kevin Podsiadlik who wrote (3394)	3/13/2001 6:04:41 PM
From: Dave	Read Replies (1) of 3543

The flaw in this reasoning stems from the projection that because a "standard" P/E ratio for a stock is considered to be 20, that the market as a whole should trade at that level. The problem is that this makes no provision for companies that are losing money That's an interesting point. It's true that if the market caps of the money losers continue to decline precipitously, their stocks will be replaced in the Nasdaq 100 by profitable companies, thereby decreasing the overall P/E of the index. That's encouraging: I don't really want to see the Naz index go to double-digits. But another factor to consider is that many of the bigger companies, like MSFT, have been reporting their investment income as operating income. So as the shares of the speculative money-losing companies approach zero, so the earnings of the big "profitable" companies will decline as their investments dry up. So while maybe Naz 95 isn't a realistic concern, there is still definitely the potential for some ugliness looming! By the way, I hadn't heard of ALGN. Thanks for that reference; it's amazing that a company that is losing $43/share annually can be valued at over $9/share. They have about $1/share in current assets, and about $0.50/share in liabilities. Am I missing something here or did the underwriters just want to shove this IPO out and cash in before the creditors started knocking on the door? Dave

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