Why high flyer stocks may crash?

Amazon
jmkL35

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jmkL35
Aug 7, 2020 17 Comments

High flyers such as SQ, TWLO, ZM, TDOC, SHOP, FSLY, DDOG, TSLA cannot be sustained. These are great companies but broken stocks. AAPL trades at 33x P/E, MSFT at 37x whereas high flyers are at 100x, and in cases like ZM and SHOP its 1000x+ P/E. Many of these are still at loss. These will crash just like FSLY and DDOG. Some day the market will realize that there is no more growth. See what happened to CSCO during dotcom bust. One earnings report that shows any sign of slow growth, these stocks one by one will most likely lose 50-70% of their value. NIKE trades at 55x P/E, Big Tech (FAAMG) is still relatively cheap, especially AAPL.

-I think AMZN can quickly turn huge profits(by not reinvesting) so their real P/E is lower than the current P/E. Other high flyers are not reinvesting but are not even able to meet their expenses, so other stocks are not like AMZN.
-Stimulus definitely has an impact but IMO these high multiples are not due to stimulus but its hype of tech stonks can only go higher. Stimulus/Free money goes typically into broad index stocks. Interest rates are a reason for overall stocks to go higher but not high flyers at 100x+ P/E. Inflation if and when picks up, will cause US dollar value erosion in addition to higher interest rates which should reduce the buying power for stocks and possibly crash the markets. Long term overall markets should and will always go up.

Thoughts? #investments #stocks

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  • Tech stocks are weird, and do not seem to obey traditional value investment view of the stock market, which made Warren Buffet successful.

    That is you try to find stocks which are trading at a bargain to their earnings which are really hard to find nowadays. Also tech stocks seem to be susceptible to hype because most non tech investors donโ€™t fully understand it.

    We might have to come up with a better way of valuing technology and innovation companies, rather than purely based on earnings and profit. The best school of thought I have discovered so far is Ark Investment and have been watching to their YouTube videos. I canโ€™t say this is holy grail of tech investing, but we will to see how it plays out in the long term
    Aug 7, 2020 1
    • Cisco / Eng
      X AE A-Xii

      Go to company page Cisco Eng

      BIO
      Hands on developer, hardworking, leader, influencer, extremely committed to work, like to learn new things, level head in times of pressure
       X AE A-Xii
      The problem with most people is a mistake to take Tesla as a car company. Its NOT. People dont get that. Its really a much diverse company
      Aug 7, 2020
  • LinkedIn
    U๐Ÿ’ฐS๐Ÿ’ฐD

    Go to company page LinkedIn

    U๐Ÿ’ฐS๐Ÿ’ฐD
    But AMZN also trades at 100x PE
    Aug 7, 2020 5
  • Never. Stonks only go up.
    Aug 7, 2020 0
  • inflation
    Aug 7, 2020 0
  • Facebook
    phase_book

    Go to company page Facebook

    phase_book
    FCF > Earnings. Amzn, salesforce etc stock continued to rise for years, at insanely high P/Es. They had high rev growth and gross margins, which means that once you stop spending on rev growth, the margins can get you high FCF.

    That said, some stocks are trading at insane revenue multiples, even factoring in rev growth & gross margins.
    Aug 7, 2020 1
    • Exactly. I'm long CRM because they literally bend their customers over on licensing on a per-user basis. The product is also incredibly sticky.

      Thanks, Benioff!
      Aug 7, 2020