Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
Students, It’s Time to Prepare Your Finances for the Years Ahead - 25th Jul 17
Stock Market and Gold Stocks Trend Forecast Update - 25th Jul 17
Saving Illinois: Getting More Bang for Its Bucks - 24th Jul 17
3 Stocks Sectors That Will Win in The Fed’s Great Balance-Sheet Unwind - 24th Jul 17
Activist Investors Are Taking Over Wall Street, Procter and Gamble Might Never Remain the Same - 24th Jul 17
Stock Market Still on Track - 24th Jul 17
Last Chance For US Dollar To Rally - 24th Jul 17
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17
Bitcoin PullBack Is Over (For Now): Cryptocurrencies Gain Nearly A 50% In Last 48 Hours - 19th Jul 17
AAPL's 6% June slide - When Prices Are Falling, TWO Numbers Matter Most - 19th Jul 17
Discover Why A Major American Revolution Is Brewing - 19th Jul 17
iGaming – Stock Prices - 19th Jul 17
The Socionomic Theory of Finance By Robert Prechter - Book Review - 18th Jul 17
Ethereum Versus Bitcoin – Which Cryptocurrency Will Win The War? - 18th Jul 17
Accepting a Society of Government Tyranny - 18th Jul 17
Gold Cheaper Than Buying Greek Villas in 2012 - 18th Jul 17
Why & How to Hedge the Growing Risks of Holding Stocks - 18th Jul 17
Relocation: Everything You Need to do for a Smooth Transition Abroad - 17th Jul 17
A Former Lehman Brothers Trader: It’s Time To Buy Brick And Mortar Retailers - 17th Jul 17
Bank Of England Warns “Bigger Systemic Risk” Now Than 2008 - 17th Jul 17
Bitcoin Price “Deja Vu” Corrective Sequence - 17th Jul 17
Charting New Low in Speculation in Gold and Silver Markets - 17th Jul 17
Bitcoin Crash - Is This The End of Cryptocurrencies? - 17th Jul 17
The Fed's Inflation Nightmare Scenario - 17th Jul 17
Billionaire Investors Backing A Marijuana Boom In 2017 - 17th Jul 17
Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - 17th Jul 17
Gold and Silver Biggest Opportunity Since Late 2015, Last Chance at These Prices - 17th Jul 17
Stock Market More to Go - 17th Jul 17
Emerging Markets & Basic Materials Stocks Breaking Out Together - 16th Jul 17
Stock Market SPX Uptrending Again After Microscopic Correction - 15th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Absurd Valuations on Unprofitable Tech Stocks

Companies / Tech Stocks Apr 18, 2017 - 01:50 PM GMT

By: BATR

Companies

The Treasury Secretary chimes in on what any market watcher should know instinctively. Mnuchin talks tech: 'I don't understand these valuations', yet the price on promises and future expectation of earnings has a large amount of the equity speculators and computerized trading in a crisis of sanity. Avoiding the fundamental relationship that a stock value is based upon the ability of a company to turn a profit, has become the hottest investment hoax since Bernard Madoff was pitching his Ponzi scheme. Uber, Snapchat and Twitter may be high flyers for the smart set, but for rational venture capitalists, plunking down gambles on risky enterprises that only feed on publicity hype is a sure bet on going broke.


While angel funding, seed investment and incubation have a nice ring to their functions, what they all have in common is gaining a piece of the equity action before any IPO is sold to the investment insiders, much less the general public. What is often lost is that any new startup enterprise must develop cash flow well before any earnings can be achieved.

Defying common sense, many of this new generation of cutting edge technology companies are pitching a dream that often turns into a nightmare for the imprudent investor. At least Apple sells, admittedly very overpriced phones, a product that has a functional and utilitarian purpose. But what possible claim of intrinsic worth does a trendy app have when duplication of utility is achieved by a tech giant as Facebook?

Even the most bombastic huckster, Elon Reeve Musk finds himself reliant on the intrepid waters of government subsidies to keep his bubble run on solar cells, alive. Yet his stock price keeps inflating with little financial connection to turning a profit, even when Sparks fly on Wall Street over Tesla’s current valuation.

"For now, Musk and his team have built up enough investor goodwill to buy him time to follow through his vision. Tesla narrowly missed its target of delivering 80,000 vehicles last year and has only reported two profitable quarters in its brief history. Nonetheless, its rapid rise could see it accelerate past Honda and move into the top five most valuable carmakers in the world.

This comes as the finances of Ford and GM are in rude health. GM is expected to earn more than $9bn this year and Ford to rake in profits of $6.3bn; Tesla is expected to lose more than $950m."

Come on folks, in what mystical world of consumer sales indifference does one accept that in the immediate future buyers will jump from the torque of a four wheel drive F-150 V-8 into the restriction of a Tesla electric cord? In order to make this fantasy work Road and Track contends, The Case for a Tesla-GM Merger. The argument simply comes down to "You put together a carmaker with mojo and a carmaker with capacity."

"We live in an era where brick-and-mortar companies frequently play second fiddle to apps and platforms and clouds and other entirely ephemeral ideas. It suits the stock market just fine, because the stock market is much like the baseball-card market, or the art market, in that it serves more as a reflection of prevailing views than as any truly prescient or even intelligent verdict regarding a company's merit. It's an illusion. Of course, it is an illusion with the power to build fortunes and destroy lives in a millisecond."

When government motors was bailed out by the Obama administration to save the unions while wiping out the bond holders, GM was given a second chance at the taxpayer expense. Now we are suppose to accept another rescue of Tesla debt to keep the illusion that the future belongs to the driverless "green" vehicle. Hey, why not just go all the way; ban humans from using gas guzzlers on the highways, while taxing a per mile user fee to replace the gas tax? Just keep diesel commercial trucks to navigate the steep grades to fix all the infrastructure that driverless vehicles will use.

The absurdity of this brave new world is as obscene as the stock prices of the technocratic anti-human robot society that is facing an expendable population. Nonetheless, do not take our analysis for the last word. Look to the essay in The Street, From the Absurd to the Ridiculous: When Fundamentals Don't Matter, where the example of Yahoo is reviewed.

"Yahoo! (YHOO) , which was a highly valued company during the dot-com era.

When looking at Yahoo!'s price and P/E ratio, the fundamentals didn't really reflect the stock price. Yahoo! was trading at nearly 3,500 times its P/E ratio at one point, which may have been unjustified.

Following that, the markets were quick to realize that the company wasn't that valuable, and it began to tank once the bubble popped.

Take a look at how Yahoo!'s market capitalization evolved over time. Prior to the dot-com bubble, Yahoo! had a market cap of less than $1 billion.

However, during the bubble, Yahoo!'s market cap rose to more than $100 billion at its peak. Thereafter, its market cap and share price fell significantly, with the former falling to between $5 billion and $10 billion."

If such a stable of the computer age as Yahoo could be reduced to the humiliation of a hostile takeover by Verizon at a price not much more than an unknown startup as Team Chat provider Slack with a valuation of about $3.8 billion, what true value does any of these high tech ventures provide over time? Anyone remember one of the scores of services from Yahoo called Messenger? Do the math, plunging down your bucks on such moving targets as superficial fads is most risky.

Google search beat out Yahoo, but will Alphabet retain the preeminent crown of dominance with their imposition of censorship and filtering out of free speech? Stock values are never guaranteed and especially with tech companies, you are only safe if competition is eliminated.

James Hall

Source: http://www.batr.org/negotium/041917.html

Discuss or comment about this essay on the BATR Forum

http://www.batr.org

"Many seek to become a Syndicated Columnist, while the few strive to be a Vindicated Publisher"

© 2017 Copyright BATR - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors

BATR Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife