Email | Print    Type Size  -  +

Tech woes see new lows

Stocks for Nokia, Dell, HP and Verizon fall below their annual sales value.

By Scott Moritz, writer
October 8, 2008: 3:13 PM ET

moritz_TECH_VALUE_graphic.gif

NEW YORK (Fortune) -- This time it really is different. It's worse.

Thursday will mark the six-year anniversary of Nasdaq's most recent low, when the tech-laden index fell to 1,114 as the last squeak of air left the Internet bubble. Today, while the Nasdaq continues to lurch downward, at 1799 it still outshines the 2002 low.

But valuations for some tech giants haven't held up quite as well. The vigorous selling by tech investors has pushed shares of some very big, profitable companies down below the value of their annual sales, a low-point milestone that surpasses the depths of the previous crash.

Companies including Verizon (VZ, Fortune 500), Hewlett-Packard (HPQ, Fortune 500), Dell (DELL, Fortune 500) and Nokia (NOK) are trading at a revenue-to-price ratio below one. For example, Nokia's $16.71 price Wednesday is considerably less than the $19.19 revenue-per-share price based on the past year of sales. The company's total market value of $61.6 billion is below its yearly revenue level of $73.2 billion.

A number of companies throughout tech have fallen into this negative valuation zone, but these four stand out for their otherwise solid financial positions and leadership in their segments.

Their predicament shows that this massive revaluation, as some might call it, has not been all that discriminating. And in several cases it has been far more severe than the last bust. Nokia, for example, has $10 billion in cash and generates about $9.3 billion in operating cash flow a year. Today it has a price-to-revenue ratio of .8 compared with a 2.1 ratio six years ago.

"We are seeing values significantly lower than the last cycle, and the earnings are higher now," says Bay Bridge Capital's Scot Labin.

"I don't think it's anything specific to these companies," says Labin "I think it's hedge funds dumping shares and people going to the sidelines."

Tech stocks have taken it in the teeth, but so to have other industry giants. Media shops like CBS (CBS, Fortune 500) and Time Warner (TWX, Fortune 500), the parent of Fortune and CNNMoney.com, are trading below their yearly sales level.

To be sure, there are other measures of valuation, like price-to-earnings ratios, which gives a good profitability metric, but basic sales have fewer moving parts and give a glimpse on the pessimism among investors currently.

Reason will eventually return to the market, says Labin.

"Those companies, which stuck with financial discipline and made acquisitions that provided adequate returns on capital, will be significantly rewarded over the next few years," Labin predicts.

Meanwhile what is a tech investor to do?

"If someone could give me the worst case scenario, I'd be able to figure out a valuation," says one long-time Wall Street tech watcher. "The problem is that no one knows what the worst case is." To top of page

Company Price Change % Change
Advanced Micro Devic... 38.56 0.21 0.55%
General Electric Co 11.52 0.23 2.04%
Bank of America Corp... 32.93 0.23 0.70%
Pfizer Inc 37.28 0.73 2.00%
Cisco Systems Inc 45.09 0.18 0.40%
Data as of Nov 15
Index Last Change % Change
Dow 28,004.89 222.93 0.80%
Nasdaq 8,540.83 61.81 0.73%
S&P 500 3,120.46 23.83 0.77%
Treasuries 1.83 0.02 1.05%
Data as of 3:13am ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Sponsors

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.