Many have tried to make the argument the current market is well overvalued, overbought and out of reach, much like the dot-com days in the 1990s. It might be true, but then we all know liquidity is the main function these days. Last week the Federal Reserve responded boldly to that question: No, we are not giving up. So, it's risk-on behavior, and eventually that will become dangerous.
I'm old enough to remember the go-go 90s, the dot-com era of stocks. That was the time when you threw money at anything to make it stick, and it usually happened. Nobody cared about valuations, and if they dared short they would be clobbered. It worked until it was time for it not to work (Fed intervention again). But valuations were stretched beyond reason, as was the case with a company named Brocade Communications.
This company was a strong one, with a Who's Who customer list. But the stock was over-loved and way overvalued. At one point, Brocade was selling at 100x sales and had little to no earnings. A huge red flag!
Put into perspective, it would take 100 years for Brocade to fill in its valuation. It wasn't going to happen. By comparison, Apple (AAPL) currently trades for about 11x sales.
Today, Brocade is part of Extreme Networks (EXTR) and was sold a few years back for a pittance of its valuation back in the 90s. The stock collapsed over that time (amid the ensuing bear market) by more than 95% before being sold.
I bring this up to compare Brocade against recent initial public offering (IPO) Snowflake Inc. (SNOW) . It went public last week and was sporting a valuation of -- you guessed it -- 100x sales.
Now, I don't know much about this software company other than it is probably well overvalued. So, if you were excited about this IPO, I would stop you right there. The red flag is up.
It's a shame this newly traded company would start so high and probably needs to work its way down. We know the owners of the company made out like bandits. But the rest of us? Probably a good idea to wait until the stock settles down from these nosebleed levels. For at these prices, you're likely to get burned.