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James Li
James Li
Articles (1392)  | Author's Website |

Tech Companies Remain Overvalued Ahead of November

A look at valuations of major tech companies using GuruFocus' own valuation method

On Friday, several major technology companies like Apple Inc. (NASDAQ:AAPL), Facebook Inc. (NASDAQ:FB), Microsoft Corp. (NASDAQ:MSFT), Twitter Inc. (NYSE:TWTR) and Alphabet Inc. (NASDAQ:GOOGL)(NASDAQ:GOOG) remain overvalued going into November according to the GF Value Line, a GuruFocus-exclusive way to measure a stock's intrinsic value.

The GF Value extends Peter Lynch's earnings line concept by considering three key factors: historical price multiples, an internal adjustment for past returns and future estimates of earnings growth. Based on the comparison between a company's stock price and intrinsic value, GuruFocus labels a stock from significantly undervalued to significantly overvalued. Also, if a significantly undervalued stock has poor financial strength and profitability, it could be a potential value trap.

Apple

Shares of Apple traded around $108.48, down over 5% from Thursday's close of $115.32 on the heels of reporting September-quarter iPhone sales decline of 16% year over year and forgoing December-quarter guidance. Despite this, the stock remains significantly overvalued based on its price-to-GF Value ratio of 1.72.

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GuruFocus ranks the Cupertino, California-based consumer electronics giant's valuation 1 out of 10 on several warning signs, which include price-book and price-sales ratios near 10 year highs and underperforming over 90% of global competitors.

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Gurus unfazed by Apple's high valuations include Warren Buffett (Trades, Portfolio)'s Berkshire Hathaway Inc. (NYSE:BRK.A)(NYSE:BRK.B), Ken Fisher (Trades, Portfolio)'s Fisher Asset Management and Spiros Segalas (Trades, Portfolio)' Harbor Capital Appreciation Fund.

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Facebook

Shares of Facebook traded around $263.78, down over 6% from the previous close of $280.83. The stock is slightly overvalued based on a price-to-GF Value ratio of 1.03.

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According to GuruFocus, the Menlo Park, California-based price-book and price-sales ratios underperform over 72% of global competitors, with the price-sale ratio near a two-year high.

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Gurus with large holdings in Facebook include Chase Coleman (Trades, Portfolio)'s Tiger Global Management and Pioneer Investments (Trades, Portfolio).

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Microsoft

Shares of Microsoft traded around $200.44, down over 2% from the previous close of $204.72. The stock is modestly overvalued based on its price-to-GF Value ratio of 1.28.

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GuruFocus ranks the Redmond, Washington-based software giant's valuation 1 out of 10 on several warning signs, which include price-book and price-sales ratios near 10-year highs and that underperform over 81% of global competitors.

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Twitter

Shares of Twitter traded around $41.20, down over 21% from the previous close of $52.45 on the heels of reporting weaker-than-expected user growth during the third quarter. Despite this, the stock remains modestly overvalued with a price-to-GF Value ratio of 1.16.

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According to GuruFocus, the San Francisco-based social media giant's price-sales ratio of 9.77 is near a five-year high and underperforms 79.73% of global competitors.

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Alphabet

Google parent Alphabet bucked the overall trend, with Class A shares trading around $1,610.29, up over 3% from the previous close of $1,556.88, and Class C shares trading around $1,611.01, up over 2% from the previous close of $1,567.24. Both share classes are modestly overvalued based on a price-to-GF Value ratio of around 1.10.

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GuruFocus ranks the Mountain View, California-based interactive media giant's valuation 2 out of 10 on several warning signs, including a price-book ratio near a 10-year high and a price-sales ratio that underperforms over 64% of global competitors.

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Disclosure: Long Apple.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

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