Let's take some examples. Not counting the dilution which is likely due to employees excercising options, there are approx. 100 million shares of YHOO. At 400/share, YHOO the company is "worth" $40 Billion. It reported .21 today. Let's say YHOO can generate annually .84/share now and we have $84 million in projected earnings.
For a little perspective, Hewlett-Packard, the company that started Silicon Valley, has a capitalization of $75B. So, if YHOO stock doubles again, as some fantasize because of a stock split, YHOO would be worth more than HP. Now HP is a great co, with all kinds of products in all kinds of markets and all kinds of hard assets. It has a PE of 26, giving it earnings of $3B.
So, for YHOO to double from $400, the market would value HP over YHOO, even though YHOO has $84M in projected earnings and HP has $3 Billion in actual earnings? Reality check. When do you think that YHOO will earn $3B? If earnings doubled each year, it would take YHOO 5 yrs to achieve HP earnings. How likely is it that YHOO can keep doubling earnings for the next 5 years? What co. has done that? If it takes 2 yrs to double instead, it will take YHOO 10 yrs to get to where HP is now.
OK. YHOO is special. Let's hang a PE of 100 (like CSCO) on YHOO. This would make YHOO worth $84 per share. Uh. Why are you geniuses still buying at $400? Answer Please.
When the bubble does burst, (1) What makes you think that you will realize what is happening? (2) If you even have a stop loss (most of you don't), do you think it will get exercised before YHOO drops way lower? Have you noticed the gaps up? Do you know what it is like to experience gaps down? (3) Will you be buying at 300 because that is "cheap" (4) How about when it gets to 200? (5) Since this is not just about YHOO, but also about 40 or so other stocks, how many of you are diversified? Or is everything in this one sector? When one of these bloated bubble stocks starts to really go, how likely is it that any of them will not be dragged down into the abyss? |
