The Nasdaq 100 has risen steadily in the last 2 1/2 weeks, even as other markets froze or faltered, up 5.6%. Investors are euphoric. The only really bad day was Wednesday after Apple, the largest component of the index, reported mixed earnings after the stock market closed on Tuesday.
Consider Nasdaq NDX 100, current valuation of 0.02% and some of its components, including Facebook FB, -0.63% and Microsoft MSFT, -0.39%, which are testing long-term resistance levels. Facebook is the fourth largest member of the tech-bellwether index, and Microsoft is number 2.
First, the data show that the price-to-earnings (P / E) multiple on the Nasdaq 100 is 26.04, up 19% from last year. The index has increased, largely because of multiple expansion, but overall gains have not supported the price increase.
Second, the dividend yield on the Nasdaq 100 has fallen 15.5%, and is currently only 1.09%. Dividends have not risen, nor have they borne higher prices.
However, prices have risen, almost one-sided sometimes, and when we look at stock prices of Facebook and Microsoft, we see similar patterns. But there is something interesting there.
While Facebook has a profit growth that largely parallels its share price chart, Microsoft does not. Facebook shares grew 32% this year, triple that of Microsoft.
Facebook is expected to have 12-month quarterly growth (TTM) of 12.5% in the next quarter, and Microsoft is expected to have a slightly negative growth rate. However, stock price lists are almost identical.
Overall revenue growth this year is expected to be slightly higher than 5% for Microsoft, but the 23 multiples seem excessive compared to that growth rate. The proportion of TTM PEG (12-month earnings-growth ratio) for Microsoft will increase to 4.4 this year, and our fair value assessment is when the TTM PEG ratios are between 0-1.5.
Curiously, although Facebook has a P / E ratio of 35, its annual growth rate is expected to be 53%, which makes its TMC PEG ratio drop to 0.51, in line with fair value.
Looking ahead 12 months, Facebook's growth rate is expected to fall, but so is the multiple P / E, and the total proportion of TTM PEG is still expected to be less than 1 given that scenario. This would suggest that Facebook, even with its higher P / E ratio, is an interesting value.
The same can not be said for the Nasdaq 100 as a whole, and Microsoft is a good example of that. As Microsoft specifically does, the Nasdaq 100 as a whole lacks value, as evidenced by statistical data for the Nasdaq 100. And, it should be asked, shares like Microsoft have been direct beneficiaries of the cash flows that go into the funds Traded on the Nasdaq 100 Tales such as PowerShares QQQ Trust QQQ, + 0.04% due to the growth of other stocks with flashy results like Facebook.