--OT--
For those who have participated and done very well in internet stocks, great. The point made previously was that valuations do matter at some point even though there can be a big divergence from any sane valuation model in the short run. In early Jan. EBAY and UBID were mentioned as short candidates. EBAY is $236 down from $321, UBID is $62 1/2 down from $189. Even AMZN is at $104 1/2 down from $199 1/8 and CMGI is $104, down from $155. Many [certainly not all] of the internet stocks have put in a top that will endure for years IMO. For quite a while, almost anyone willing to buy a .com made money. From now on, it gets treacherous. Some will do very well, while others will rue the day they ever heard of internet. During this latest period, while many Internet stocks have been beating a hasty retreat, a low PE stock like Timberland has gone from $34 to $60 [a 6 X '99 est. to a still cheap 11 X '99 multiple]. The market was saying in early Jan. that it was worth only $34- that is all the consensus said it was worth. Now the stock has moved up 76% and it is clear the market was mis-pricing TBL [since the company has changed little in 6 weeks] just as it mis-priced UBID at $199 1/8. More power to a market that takes companies bought reasonably to a 100 multiple. It has allowed many an early retirement to proceed and succeed. I say thanks, but never forget that the market ultimately will correct short term inefficiencies in pricing.
--More OT-- Back in the early '80s I looked at Eli Lilly. The history was illuminating. Approx. 10 years earlier, LLY was a " hot" stock selling at around $60 going for the then high PE multiple of 30. Many people bought it expecting great growth from the company. During the next 10 years, Lilly didn't disappoint, tripling its sales and earnings. What did the stock do? Well. sad to say, it went from around $60 to...$60. What happened? Earnings tripled but the PE went from 30 to 10. Many a company out there today will exhibit great growth and experience similar or worse price behavior- especially those selling at an absurd multiple of hope. Mike |
