Some analysts have questioned whether prices of some Internet brokerage stocks are justified compared with their ability to generate earnings. Shares of Ameritrade, for example, trade at 247 times earnings per share, compared with 21 for Merrill Lynch & Co., the biggest U.S. broker. Siebert's P/E is 267 and E*Trade, whose share price has almost quadrupled in six months, hasn't earned money for two quarters.
''The fundamental question is do they deserve these valuations,'' said Stephen Franco, an analyst with Piper Jaffray in San Francisco.
Investors have pushed up shares of online brokers as trading over the web has grown in popularity. More than one in seven U.S. stock trades is now done online, with trading volume up 34 percent in the fourth quarter from the third, according to Credit Suisse First Boston.
Some analysts warn such growth rates can't be sustained. They're mainly because of so-called day traders who buy and sell frequently to profit from the bull market in stocks.
''A lot of these electronic and discount trading firms are growing based upon phenomena that aren't sustainable,'' said Peter Russ, an analyst at Laidlaw Global Securities Inc. The customer base for online trading may be there now, but ''these are not the kind of people that will be good customers going forward,'' he said.
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