Market Overview

How Has The Market Selloff Changed The Fundamentals Of Tech Giants?

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How Has The Market Selloff Changed The Fundamentals Of Tech Giants?

The huge market selloff so far in 2016 has seemingly centered on high-growth tech names. With shares of Facebook Inc (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG), Apple Inc. (NASDAQ: AAPL) and Netflix, Inc. (NASDAQ: NFLX) already down 5–29 percent in 2016, Benzinga took a closer look at how the fundamentals of these tech giants now stack up.

Earnings

A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. Here’s how the current PEs for these five big names compare.

Apple remains the only stock of the group with a PE lower than the S&P 500’s overall PE of 20.3. Facebook, Netflix and Amazon’s PE’s of over 75 are nowhere near the typical range. However, the market selloff has helped each of the five stocks improve its PE over the past three months.

Related Link: Tech Bubble 2.0 Has Burst, Warns JPMorgan Quant

Growth

When it comes to evaluating a stock, price is not everything.

Growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. Here’s a comparison of the PEGs of these five names.

Again, at 0.9, Apple is the only stock with a PEG lower than the overall S&P 500. Alphabet and Facebook’s PEGs are both relatively high. Netflix and Amazon’s PEGs are more than five times the S&P 500 average.

Cash Flow

Finally, when a company reinvests a large portion of earnings back into the company for the purpose of expanding operations and growing the business, earnings numbers aren’t the best measure of a company’s performance or a stock’s value.

Instead, investors may choose to focus on cash flow from operations, which indicates how much cash a company generates from regular business activities. Take a look at the price-to-cash-flow-from-operations ratio for each of these five companies.

Once again, from a value perspective, Apple comes out on top. Alphabet and Amazon’s ratios are above the market’s historical average, but Facebook and Netflix’s P/OCF are substantially more than twice the S&P 500 average. The market selloff has improved the P/OCF numbers for each of the five names over the past three months.

Takeaway

While Apple shareholders have plenty of reason to be concerned about the stock’s 2016 downturn, the company continues to add to its appeal from a value perspective. Shareholders of Amazon and Netflix, on the other hand, must hope that the market soon returns to rewarding growth above value or these stocks still have plenty more downside remaining.

Disclosure: The author holds no position in the stocks mentioned.

Image Credit: Public Domain

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