The current industry price to earnings average
for the technology sector is 22.50. (as of 1-22-13
) This got me thinking: what companies trade for more than double the industry average? More importantly, which of these high valuation companies are truly worth the price?
I came up with several prospects, but I've picked out five companies for us to look at.
- Linkedin Corporation (NYSE:LNKD)
- Facebook Inc (NASDAQ:FB)
- Applied Materials, Inc. (NASDAQ:AMAT)
- Rackspace Hosting, Inc. ( NYSE:RAX)
- Equinix Inc (NASDAQ:EQIX)
Before we get to talking about these companies, let's get an overview of how these companies stack up in some basic metrics.
||Price to Earnings
As we look at the trends for these companies, some interesting things begin to emerge.
LNKD Revenue TTM data by YCharts
LNKD Net Income TTM data by YCharts
LinkedIn and Facebook grew their revenue faster than the other three companies that we are looking at. Revenue is a good thing to grow obviously, but interestingly enough, more revenue hasn't directly translated to net income. LinkedIn's revenue has increased over 240% over the last 2 years, but net income is only up 58%. Facebook's revenue is up 134%, yet their net income is down over 60%.
Meanwhile, Rackspace and Equinix saw their revenue grow over 50% over the same span of time. Yet Rackspace's net income is up over 100% and Equinix's net income is up over 200%.
Applied Materials has been trending downwards in terms of both revenue and net income.