A challenge for readers
I don’t have the time to do the research right now, but this article on multiple compression in high flying tech stocks got me wondering. At what point during a downturn does broadline multiple compression take hold? Our economy has been teetering for almost a year now and Apple and Google and many other high flyers have managed to maintain significantly high P/E and PEG ratios. Earnings haven’t contracted and while near term growth has come into question for any business which participates in the US (and world) economy, long term fundamentals don’t seem to be significantly impacted. As a result, multiple compression as a phenomenon seems to be more a sign of investors unwinding positions and a broad shift in the risk appetite of investors – institutional and retail alike. Obviously, multiple compression is also a sign that a company is fundamentally worse so we’d have to work out some way to differentiate between warranted and unwarranted multiple compression (which shouldn’t be too hard because hindsight is 20-20!). Thoughts, comments?
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