The prices of stock of Tech companies were at a peak for the last few years. Some stocks are on the verge of a huge fall from the sky-high prices during the last few months. Are the Tech Stocks really moving towards another big collapse? FinanceShed has an answer, here is the analysis.
There are numerous companies coming up with their Initial Public Offerings worth billions of dollars. Despite having losses and financial trouble companies like Uber and Lyft have managed to come up with IPOs and also have lost money. This scenario is quite similar to that happened just before the dotcom bubble wrecked the market 18 years ago.
Although not similar to that situation, there are certain signs that inspire us to think about the possible outcomes of this market condition. Investors presumed that a company that operated online was going to be worth millions.
These assumptions made the Tech companies giant and were traded heavily. Most of these tech stocks are overvalued and are not great to invest in as the financials are sometimes window-dressed that depicts a whole new picture of the company which in actual does not exist.
The investors should not ignore the fundamentals of investment in order to get huge profits without considering P/E Ratios, market trends, review of business plans, etc.
Factors Responsible for Downfall
The first and most important aspect that leads to the bubble burst is the overvaluation of stocks. There are very high multipliers in their models and formulas for valuing the worth of the companies and the value of stocks. They created an unnecessary hype due to which they looked big.
The other reason is ignoring the actual cash flow in the market. The investors must go through the channel of the generation of cash flows and how these companies generate revenue from it.
The Tech stocks are already valued much more than what the actual worth is and these were also the major reasons of the 2000 bubble burst. Again, with the introduction of huge platforms in the social media and internet, tech stocks are again heading towards a new hype of this market. Could it be another bubble burst?
Is There a Scenario of Another Bubble Burst?
There could be another bubble bust if the shares become too much volatile and speculative. Current tech firms are considering having fewer revenues that are actually needed when going public. The best example of this is Uber.
It showed losses in its financial statements before going public and also considering no positive approach in its prospectus. The market is getting highly volatile and there are chances of these firms being bankrupt.
Are the Brokerage firms blanketing the airwaves with day-trading advertisements? This should be considered before reviewing the market as the expectations from the tech companies are sky high and the revenues are not up to the mark that is expected out of these companies.
The enthusiasm among the investors for these tech stocks is worrisome. There are chances of downfall due to this as one of the intangible factors responsible for market conditions is the sentiments.
It is a matter of great concern as the FAANG Stocks are also getting into trouble and companies such as Apple, Facebook, Netflix have almost fallen about 40% over the past few weeks. The competition here is a real game-changer.
It is important to not get caught in such hasty trends and keep an eye on the real worth and cash flows of the companies most importantly now when the market is losing faith in Tech companies.