Wow. Google stock is now at $414 per share down from a high of $747 per share in the last year.
That means the company now has a market cap of less than $100 billion.
Yet the company still generates more than $17 billion in annual revenues and will earn more than $4 billion of profit, 25 times earnings or so. Yikes. What a meltdown for everyone.
Why is a 25 – 1 earnings to profits ratio irrational?
When historically has that been a low ratio?
I am waiting for the housing market (part of my business) to come back to some semblance of reason too. Houses are going for less than it costs to build them. That’s not reasonable. Problem is when your neighbor’s house sells for peanuts, guess what your house is now worth (and the portfolios of all the investments that are based upon the value of your house and its mortgage return)?
That’s right, all of a sudden the guy down the street defaults and pretty soon everyone’s wealth evaporates.