THE SETUP FOR THE FALL (CRASH) -->
I read this on the yahoo BEAS board when I was wondering
why they went down so much. Found they have a P/E
of 996.5.
If BEAS earns 7 cents(11 total) PE=327
If BEAS earns 8 cents(12 total) PE=300
Anyway, the following I find VERY interesting.
It's not about BEAS, but the market value of
the NAZDAQ itself.
Would anyone here like to make a comment on it?
Posted 05/03/01
The Nasdaq 100 index has a market-cap weighted price-to-earnings ratio
of 102, based on projected 2001 earnings. By how much are Nazz 100
earnings expected to grow in 2001? They're not. They're supposed to fall
by 7%, again using a market-cap weighting that accords a 50% weighting
to the index's seven largest stocks: Microsoft,
Intel , Cisco Systems ,
Oracle, Dell Computer Amgen and Sun Microsystems.
Yes, as we all know, the stock market is a forward-looking beast and now
it's factoring in a future recovery. Sure enough, analysts expect weighted
Nasdaq 100 earnings to jump 62% in 2002 to $31.17, from 2001's
$19.20. Hence, at its Wednesday value of 1962, the Nasdaq 100's P/E
ratio for 2002 is 63. This is just about the same as its growth rate, giving a
price-to-growth ratio of 1, which, at first sight, would appear very
reasonable.
However, as the recent past has taught us, Wall Street analysts' forecasts
have all the accuracy and dependability of a $10 Rolex. Better to take an
average of the 2001 and 2002 earnings. This is fairer for the bulls because
it reduces reliance on 2001 earnings, which they see as exceptionally low
because we're in a turnaround year, and it benefits the bears who think it
foolhardy to rely on the sell side's 2002 earnings forecasts. A 2001-02
average produces $25.19 in average earnings over the two years (31.17 +
19.20 divided by 2).
The Fosbury Flop
Dividing the Nasdaq 100's 1962 by 25.19 produces a P/E ratio of 78.
Can earnings grow at 78% or more? Not without a miracle. In the boom
years of tech spending, 1998 through 2000, earnings at the tech companies
in the S&P 500 index grew by an average of 14%. Taking Nasdaq 100
weighted actual earnings for 2000 and the weighted forecast numbers for
2001 and 2002, these 100 corporations have an average growth rate of
28%.
If the long-term earnings growth rate for tech stocks turns out to be around
20% -- roughly the midpoint of the above growth figures -- the
price-to-growth ratio on the Nasdaq 100 is nearly 4.
That can't last. When the adjustment comes, don't be surprised if Nasdaq
100 stocks fall to trade at twice that 20% growth rate, or at a P/E ratio of
40. In that case, 40 times our 2001-02 average earnings of $25.19 would
produce a Nasdaq 100 level of just over 1000, which is nearly 50% below
the current level. If the wider Nasdaq Composite Index fell by 50%, it'd be
sitting at 1110, well below the 1500 mark Detox once predicted.
When will we get to 1500? When the folly of the Fed's pump-priming
shows up in an inflation rate that the market can't ignore. Inflation is already
bobbing around five-year highs, going by the Cleveland Fed's inflation
index, arguably the fairest measure, so the market already should have
freaked. It hasn't yet, testifying to its willingness to bet everything on
Greenspan's handling of the economy. When the Fed has been discredited inves...
(I believe yahoo cut him off here because his post was
too long).
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