Tech Stocks Valuations | The Investment Quadrant by The Fifth Person

Questions › Category: Investor Psychology › Tech Stocks Valuations

Theodore Tan asked 3 years ago

Hi Victor,
I kind of forgot what you say regarding Tech stock valuations.
Do we use P/E ratios? I think I remember in general you mention we can do that
Are there any other ratio we can use to price a tech stock?

Thank you!

1 Answers

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Victor Chng answered 3 years ago

Hi Theodore,

In general, PE valuation should be the right model for tech stocks unless they are losing money. Then PE ratio is unable to use.

Jieren Zheng replied 3 years ago

In that case, may I suggest Price-to-Sales?

Victor Chng replied 3 years ago

Yes Price to Sales are usually for those lost making companies.

Theodore Tan replied 3 years ago

Thanks both

Jieren Zheng replied 3 years ago

Victor, may I hijack a bit and wonder how do you determine whether PS ratios are reasonable? I see many Saas companies that look good yet loss making.

Victor Chng replied 3 years ago

You can plot out the price to sales chart which is similar to PE chart. The key is increasing revenue that comes with potential profitability

Jieren Zheng replied 3 years ago

I was thinking most of these aren’t really proven but they command insane valuations