2015 US Equity Market Performance: Lopsided
Looking only at the broad indexes, the losses were modest. The Dow fell 2.2% and the S&P 500 fell 0.7%. But only a few stocks did well. According to Bonner & Partners researcher Nick Rokke, on average, the 10 biggest stocks by market cap in the S&P 500 rose by a little less than 27% in 2015. On average, the bottom 490 were down by about 2%.
Excerpted from this source.
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Afterthought (added Jan. 10, 2016).
FANG's Valuation Multiples
1) Facebook: 98 -- based on $97.33 share price as of Jan. 8, 2016 close
2) Amazon: 870 -- based on $607.05 share price
3) Netflix: 296 -- based on $111.39
4) Google (now Alphabet): 31 -- based on $730.91 share price
The first letter of each company's name, F + A + N + G = FANG.
Their combined PE ratio works out to 56. Derivation: Their aggregate market cap is $1.11 trillion. Their aggregate trailing 12-month earnings is $19.6 billion. Dividing results in 56.
One could also have worked with enterprise value (EV) to EBITDA ratios to reach the same conclusion, which is that these stocks are expensive. OK, here are their enterprise value to EBITDA ratios:
1) Facebook: 39
2) Amazon: 41
3) Netflix: 127
4) Google: 19
Their combined enterprise value to EBITDA ratio works out to 28. Derivation: Their aggregate enterprise value is $1.035 trillion. Their aggregate trailing 12-month EBITDA is $37.3 billion. Dividing results in 28.
More on their latest financials available on Yahoo.
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How expensive are these stocks? A reasonable PE ratio might be 10-25 ... A reasonable EV/EBITDA ratio might be 10-20 ... The implied overvaluation is therefore what? (A) 2-5X according to PE, (B) 0.5-3X according to EV/EBITDA. Taking the minimum, we get 0.5X overvaluation, at least. To eliminate a 0.5X overvaluation requires a 33% price drop.
For reference, the S&P500 closed at 1,922 on Jan. 8, 2016, down 6% from 2,043 on the last trading day of 2015. A 33% drop would put it at 1,281.
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