“There is not a tech bubble occurring, despite the fact that some pricing looks stretched,” CMC Markets chief market strategist Michael McCarthy told InvestorDaily.
“The reason on a P/E basis that tech stocks often look stretched is because they often have superior growth profiles.
“In assessing high growth stocks, it is the P/E to growth ratio that is a more important measure.
“It does put us into more stretched territory, as it were, because there are more estimates required when looking at a P/E to growth ratio, but it is a fairer comparison, within the sector at least.”
Mr McCarthy’s comments come after recent comparisons were made between the current sector valuations and the tech bubble of the late nineties.
“I’ve heard comparisons with the current period in the United States to the 1998 to 2001 run, but the big difference is so many of these companies are actually delivering revenue,” he said.
“There might still be aggressive projections on how that revenue will grow, but that revenue is coming through and that’s a big difference.”
Released yesterday, the CMC Markets special report, Are we in a tech bubble?, authored by senior market analyst Colin Cieszynski provides market context to the bubble speculation.
“With Google trading above 1,000 and the NASDAQ Composite back above 4,000, some have been asking if tech stocks are in a 1999-style bubble once again,” Mr Cieszynski said
“While that doesn’t appear to be the case, the strong gains of the last year mean that expectations have risen dramatically and some stocks could be vulnerable if they don’t deliver,” he said, adding that selected tech stocks “have been getting really pricey”.
“Although the overall technology sector does not appear to be overvalued, it is possible that some specific companies may be more richly valued than others and potentially more vulnerable,” he said.
