Chief Prognosticator

Crazy PE Multiples

Should some of these crazy Price-to-Earnings ratio multiples be a sign to someone out there that a stock “might” be overvalued? I mean take Chinese Internet Company Baidu.com. It has a PE ratio of… say it with me… 130! That’s crazy. The company’s market capitalization is somewhere around $8 billion. So what are you getting for that money? A measly $20.9 million in quarterly profits! No that wasn’t a type — not $209 million or $2.09 billion — but $20.9 million bucks! And that makes the company worth $8 billion? Ha! Yet investors seem to keep piling on. Go figure.