jeudi 27 octobre 2022

A bad day for techno

Since I own Meta, Microsoft and Alphabet shares, yesterday wasn’t a good day at all. They all had a bad day. Very bad in the case of Meta.

Even if these stock’s valuation wasn’t exxagerated at all (actually, we could almost say that they were cheap), they all went lower/much lower (Meta).  

I don’t understand why so many owners of these shares seem to panic. Of course, Meta’s last results were no good (EPS dropped by almost 50% versus last year). But not any of these companies is going bankrupt or will face tough times in the coming years (like lots of debt and little money on hand).

In the case of Meta, it looks like this :

* 14B$ cash on hand (about 50B$ if we add marketable securities and accounts receivable);

* Margins and ROE over 20 in the recent years (which is not that common on the stock market);

* 10B$ debt;

* 300B$ company, so that debt is not that high.

So, what should be the value of a company with lots of cash on hand, a small debt, high margins, high ROE, a company that offers services used by more than 3.5 billion people (which is a also a kind of monopoly). I’m not saying that it’s the best company in the world, but is a PE of 8-10 really rational for that kind of company? When you analyze 100 companies from the stock market, you see that such a PE ratio is usually applied to a very random company. Like an oil and gas company that produces something like 50 other companies. Or a company without growth for the last 10 years.

I don’t think that any company with high margins, high ROE, low debt and used/known by billions of people should be sold for a PE under 15. Because a PE of 15 is the historical mean of the market, which means that it’s also the usual mean of stocks. Which means that 15 is the PE of an average stock.

Meta, Alphabet and Microsoft are not average stocks.

1 commentaire:

  1. The market did not like Zuckerberg's plan for the near future which is to concentrate heavily on the metaverse idea which is not predicted to potentially generate any meaningful revenue for years. Dedicating resources in this direction is signalling a reduction of resources to its core businesses. He has basically stated there is more pain ahead for investors before it can get better and has given the finger to institutional investors.