Tags: tech | stocks | value | investors

Investors: Young Tech Stocks Headed for More Woe

By    |   Monday, 12 May 2014 01:50 PM

The stocks of young technology stocks have taken it on the chin during the past two months, and investors say there is more carnage to come.

The technology-laden Nasdaq Composite Index has dropped 5.5 percent since hitting a 13-year high March 6. And younger tech companies have suffered worst. Twitter, for example, has dropped 55 percent from its Dec. 26 record high.

The basic problem for the young tech stocks is that they were vastly overvalued, investors tell The Wall Street Journal. And many still are overvalued, they maintain.

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For example, while Tesla Motors, the electric car company, traded recently at a whopping 89 times next year's estimated earnings, its price-earnings ratio has dropped from 117 in March, according to FactSet, The Journal reports.

"We've gone from three times silly to two times silly," Mitch Rubin, chief investment officer at RiverPark Funds, tells the paper.

And the stocks may well continue their slump, as investors pay more attention to fundamentals, he said. "When the facts start to matter for these stocks, the bottom is a long way off."

"The challenge these stocks are going to face is who is the buyer here that steps in now that the bloom is off the rose," Michael Church, president of Philadelphia-based Addison Capital, tells The Journal.

Seth Setrakian, co-head of domestic equities at brokerage firm First New York Securities, agrees. "You can't go to Warren Buffett and say, 'Buy Twitter, it's cheap.' He'd slap you."

Many experts view the tech-stock drop as a return to reality.

"This is a reality check where people are saying we're in a speculative bubble around a few discrete stocks that is bursting or should burst," Scott Kessler, ‎head of technology sector equity research at S&P Capital IQ, tells Time.com.

"For some of these companies, the valuations are becoming harder to rationalize or even understand."

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The stocks of young technology stocks have taken it on the chin during the past two months, and investors say there is more carnage to come.
tech, stocks, value, investors
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2014-50-12
Monday, 12 May 2014 01:50 PM
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