Yahoo Finance We might be on a verge of a gigantic market bubble
Most Wall Street pros aren’t yet ready to say we are smack in the middle of a gigantic stock market bubble on the cusp of exploding.
But you can’t help but to wonder if they are missing something that could soon end very badly for investors aggressively pursuing fat returns in a low interest rate world. Just take a gander at some of the outrageous activity that has happened in markets these past few weeks.
Cloud play Crowdstrike (CRWD) saw its stock explode more than 100% on its June 12 IPO day at one point. The stock closed up 71% on the session — despite the company being among tech’s new breed (see Uber (UBER), Lyft (LYFT)) not earning any money. Along the same lines, gig economy play Fiverr’s (FVRR) stock soared 91% on its first day of trading June 13. It also makes no money. Online pet supplies retailer Chewy’s (CHWY) stock skyrocketed 59% in its debut on the New York Stock Exchange on June 14. The company has also been unprofitable for years.
Faux-meat maker Beyond Meat (BYND) has seen its stock go haywire since its early May IPO, up 158%. The company has also not made a dime.
On the deal front, Pfizer (PFE) said Monday it would buy Array BioPharma (ARRY) for a 48% premium. While boasting an impressive cancer drug pipeline, Array has lost money in four of the past five years. That’s a stiff premium paid by Pfizer. Not to be outdone, Sotheby’s (BID) said Monday it has accepted a $3.7 billion deal by French billionaire Patrick Drahi. The premium paid: a cool 61%.
Insane deal premiums? Wildly enthusiastic market reactions to money-losing companies? Sounds like the 1999 dot com bubble all over again, though at a less grand scale.
“Sotheby’s is just a vanity play. For every Chewy there is a Lyft and Uber. With economic growth slowing, people are scrambling for any growth they can find. Beyond Meat’s valuation for example is beyond logical. We’ve seen asset prices inflate for years, this is just more of the same,” Bleakley Advisory Group Chief Investment Officer Peter Bookvar tells Yahoo Finance.
That’s about as far as the pros Yahoo Finance have talked with will go on whether we are witnessing a market bubble. Others quickly point to stock valuations still being rather attractive — on a stand-lone basis compared to historical averages and relative to bonds —as the main reason we are not witnessing a bubble.
Not quite a bubble
For the broader market, they make a respectable point on valuations being somewhat reasonable.
“If you look at the top 10 Nasdaq names on a price-to-sales basis, we were traded at a weighted average of like 20 times in the late 1990s. But today, we are at four or five times,” said Invesco strategist Brian Levitt on Yahoo Finance’s The First Trade. “Even if you’re at the broad market trading at about 18 times earnings in a 2% interest rate world, stocks still look better than bonds. So I would expect multiples to continue to expand here.”
“We are not at a bubble territory yet,” added Levitt.
Emphasis on yet — there is little doubt with the Federal Reserve’s easy money sloshing around the system, investors are beginning to take greater than average risks. You can see that in the aforementioned reactions to several new issues and the premiums paid to acquire growth. It may not end badly today or even this summer, but at some point investors will have to step back and realize they are over-paying to own stocks.
Brian Sozzi is an editor-at-large and co-host of ‘The First Trade’ at Yahoo Finance. Follow Brian Sozzi him on Twitter @BrianSozzi
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