Bloomberg reports today that the rally in technology stocks this year has extended the Nasdaq 100's gains since 2009 to 317 percent and brought it within 8 percent of its record high set in 2000.
In addition, it has pushed the price-earnings multiple for the Nasdaq 100 to 22.9, above the average valuation of 19.2 over the last five years but below the mean level of 23.5 since the start of 2005. The index is also trading at 2.9 times annual sales compared with 2.5 over the last decade.
Among the well-known tech stocks, Microsoft is trading at a multiple of 15.8 times earnings, near the average since 2005, but Facebook and Regeneron Pharmaceuticals Inc. are trading above 70. Still, Facebook is much cheaper than it has been over the last three years, when the price-earnings ratio averaged more than 300.
Google Inc. trades at 26.3 time earnings, close to the Nasdaq 100 multiple but down from a 10-year average of 34.8.
Indeed, Bloomberg notes that when compared to the height of the tech bubble in 2000, tech stocks are now much cheaper.
Declines in the biggest U.S. tech stocks and expansion in their profits have done much to close the valuation gap from 2000. How overvalued where they then? Based on prices at the Nasdaq peak and analyst forecasts for 2015, Microsoft was trading at a 15-year forward price-earnings ratio of 72, Cisco Systems Inc. at 41, Intel at 49 and Oracle Corp. at 45.
“I wouldn’t call technology stock valuations stretched,” Jason Benowitz, a New York-based senior portfolio manager who helps oversee $4.5 billion at Roosevelt Investment Group Inc., said by phone. “Many tech companies are considered value stocks.”
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