Ghost of Igloi wrote:
price to sales ratios are one of the best, and most under-rated valuation measurements.
the problem is that comparing companies across industries like this graph does...doesnt' make sense.
The spx is much more tech dominated than in the past...and tech companies deserve much higher price to sales ratios than old line industrial companies.
So it's not a surprise that price to sales ratios have gone up as tech has become a larger part of the index.
This is one of the many problems of leaning too hard on valuation...it's not apples to apples over decades, so the message you think you are getting...is inaccurate.
Tech stocks are deeply cyclical and will face a valuation reset more severe than others. Stock buybacks and non-GAAP accounting have masked zero real growth the last several years. All you are getting is multiple expansion based on overly optimistic projections. The longer and higher it goes, the more severe the reset.