"Valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year"
Today, an analyst responded to Janet Yellen and challenged the Fed's statement offering this chart. He mentioned valuations are in line with the historical median and 80% below the peak of the tech bubble(yep, no slant here).
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| Chart from ISI |
This response is complete B.S. The FED only mentioned the smaller biotechs and this guy comes at us with with notes on valuations of biotechs in the Russell 1000.
Just from cross referencing, we can see there aren't names under a 2B market cap in the Russell 1k member list. This chart is leaving out 90% of all biotechs!!
Finally, of course they had to include comparing the uber high P/E's of the tech bubble while biotech was an infant of the industry it is today. Who even offered that P/E is the correct way to measure value for the industry? But screw it, right? Publicity is publicity.
What makes this a tough topic to discuss is the permanent dichotomy in the biotech group. The mega caps like CELG and GILD are still fairly valued to cheap given their growth rates, while there are a ton of clinical stage companies that are just burning cash and likely will never make a successful product.
I'm with the Fed on the smaller names. There is a lot of hope priced in right now and hope is an expensive premium.
What do you think? give me a shout @atmcharts on twitter
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