top of page

What were the PS ratio of popular stocks at the peak of the Dot-com bubble?

Updated: Jun 28

KEYPOINTS

🔑 The PS ratio, a key valuation metric, can help identify overvalued stocks. During the dot-com bubble, many successful companies today traded at high PS ratios, leading to stagnant or declining stock prices for years.

🔑 While avoiding overvalued stocks is important, long-term investing is generally recommended over market timing. Dollar-cost averaging is a good strategy.

🔑 Consider waiting to invest in a company if its PS ratio is above 21 when its stock price reaches a new high, but focus on staying invested in the market overall.


 

Table of contents


Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 


Why is it useful to know the PS ratio of these companies during the peak?

  • As a long-term investor, we should avoid investing in stocks when they are overvalued.

  • At the peak of the Dot-com bubble, many stocks were trading in lofty valuations which resulted in a market correction period of up to 3 years.

  • For many of the stocks such as Microsoft, Taiwan Semiconductor, Adobe & Amazon, their stock prices were moving sideways for up to 17 years.

    • this means, capitals invested in those stocks at those entry points will take up to 2 decades for them to break-even,

      • factoring in inflation, that would result in a net loss for the investor.

If an investor invested a majority of his capital into Microsoft stock at the peak in 27Dec99, he would need to wait for 17 years to break even. That is a long period of time.
For the capital invested into Microsoft stock at the peak in 27Dec99, investors would need to wait for 17 years just to break even.

Stocks like Cisco & Intel on the otherhand, have yet to recover to their previous all-time high prices in Dot-com bubble peak even after close to 24 years later.
Stocks like Cisco & Intel on the otherhand, have yet to recover to their previous all-time high prices in Dot-com bubble peak even after close to 24 years later.

Dot-com bubble

Top to bottom

Period:

24Mar2000 to 11Mar2003 (3 years)

S&P500 chart from tradingview.com
S&P500 chart from tradingview.com

S&P500 index down by:

49%


Top to Top

Period:

24 March 2000 to 10 Jul 2007 (7.3 years)



PS ratio of popular & successful companies during the peak.

  • (note): only included companies which still went on to become successful companies today.

    • companies which went bust (ie Pets.com, Boo.com, eToys) are excluded.

    • Successful present-day companies such as Google, Facebook, Netflix, Tesla and Fortinet are not included because they were not yet publicly listed at 24 March 2000.

Stocks

PS ratio on 24 March 2000

Years it took for price to surpass all-time high price on 24March2000

Cisco

35

Yet to surpass as of Nov 2023

Intel

16

Yet to surpass as of Nov 2023

Qualcomm

22

19

Oracle

27

17

Texas Instruments

15

17

Microsoft

26

16

Booking Holdings

34

12

Taiwan Semiconductor

21

12

ASML Holdings

18

12

Adobe

13

11

Amazon

19

9

Nvidia

7

6

Apple

3

4

Walmart

2

8

McDonalds

4

6

Goldman Sachs

4

5

eBay

171

4

Amex

4

4

Autodesk

4

4

Monster Beverage

1

3

Samsung Electronics

2

2

Nike

1

2

Starbucks

4

1

Take-two

1

1

Berkshire Hathaway

4

Almost immediately


Key takeaway: Avoid buying into companies when their PS ratio is higher than 21X

  • The median PS ratio of the companies from Cisco to Apple above is 19.1X


  • The other companies in the list are excluded from the calculation of the median because:

    • they were either not really operating in the tech industry (ie Walmart, McDonalds, Goldman, Nike) and/ or

    • it did not take them very long to get back to their all-time high prices (during the peak) or (ie Berkshire Hathaway)

    • their PS ratio was at a ridiculously high level and they are not considered to be a fundamentally strong company in today's standards (ie Ebay).

  • however, if we were to exclude Nvidia & Apple (since they both recovered before S&P500 did- 6 & 4 years respectively, while S&P500 took 7 years),

    • the PS ratio median will be 20.5X instead.

    • rfr to working file here.

  • Disclaimer: The author utilizes this method selectively, acknowledging its limitations (ie only using limited sample size of 25 companies) and potential inaccuracies for others. This benchmarking method may be subject to future modifications at the author's discretion.


(Caveat): By no means this post is encouraging our readers to "Time the market".


For more about Valuations & Price-to-Sale ratio


Read:



To know how much did the companies' stock prices fall during the dotcom burst:



 

Looking for a set of checklists to identify great companies for your portfolio?

0 comments

Comments


bottom of page