FundRobot » Mutual Funds » Why do internet stocks always tend to become over-valued?

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Default do internet stocks always tend to become over-valued

Even today, after the dot-com bubble - why do internet stocks always have the tendency to become overvalued?

I mean, every internet stock I can think of - Amazon, Facebook, Google, Yahoo, LinkedIn, etc. etc.



They are all over-valued.

Whereas companies in other fields typically do not become so over-valued.

What is it about internet stocks that make people think it's OK to buy, even at such high valuations? People are obviously buying because most of them haven't popped yet.
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Default do internet stocks always tend to become over-valued

growth estimates get out of hand, and undue valuations ensue
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Default do internet stocks always tend to become over-valued

Internet stocks tend to be grossly overvalued in their early growth stage, when the amount of growth is unpredictable. So investors tend to jump in and pay more because they want to get in on that growth that hasn't happened yet. Think of it as "get in on the ground floor" mentality. Most companies only see this for a few years until their growth picture is more clear, then they settle in at more reasonable valuations, like Google and Yahoo in the mid-high 20's.

This Alibaba IPO is really a worry. The market cap is supposed to be $200 BILLION! Where do you think the money to buy $200 billion in a new stock will come from? Answer: Every other growth stock. If you hold a growth stock where the bloom is off the rose (Netflix might be an example), expect to see those stocks take a hit as mutual funds and ETF's sell those to make room for Alibaba. Also, goofy over-priced IPO's tend to send a message to serious investors that maybe this market has gotten out of hand and a correction is in order.
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Default do internet stocks always tend to become over-valued

Amazon has earned 400% in the last 5 years. Google is at a P/E of 26. Yahoo is a P/E of 28. What makes you say these stocks are over valued?
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