Now, at the height of the coronavirus disease COVID-19, it is very tough to value stocks.
But that said, what is an adequate Price/Earnings ratio for the current environment?
Before the coronavirus disease COVID-19 hit the forward 12-month Price/ Earnings ratio of the Standard and Poor's 500 was 19. Now, net earnings and sales of nearly all listed in America companies will crater basically due to the economic recession, a likely depression, that is going to follow the coronavirus shock.
I personally think valuable companies should trade at around 7 to 9 Price/Earnings ratios now. Even with the fall of profits and revenues companies trading at Price/Earnings ratios of 7 seem well valued and preserve significant upside when things settle down and the recovery resumes. Basically, most stocks are becoming value stocks in this environment.
How does this Price/Earnings valuation square against the many technology companies that are loosing money with no net profits reported and not likely to report net earnings in the near future? Publicly listed examples of such technology companies are Uber, Lyft, Tesla, Snap, Dropbox, Box, Groupon etc. Well, I think many of these money loosing technology companies could go bankrupt if the economic recession turns out to be a prolonged one. For them it is all about raising new money from venture capital funds to cover the wholes in their balance sheets, because they are burning through cash rapidly.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
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Respectfully yours,
Petar Posledovich
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