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Record Enterprise-Value-to-Sales Ratios Shows Why Stock Market is So Unstable

Record Enterprise-Value-to-Sales Ratios Shows Why Stock Market is So Unstable. It was no surprise to us that an unexpected event like the coronavirus scare of China would spark a major stock market decline. That’s because, as we’ve discussed in recent weeks, the stock market has been vastly overvalued. The market is at record levels by a number of different measures. That has made it highly susceptible to major downturns when there’s unexpected bad news. A great example of the market’s record overvaluation comes from Otavia Cresta of Crescat Capital. He shows in the chart and table below that the great majority of industrial sectors in the S&P 500 are trading at record levels using their enterprise-value to sales ratios. Those levels greatly surpass even the lead-up to the 2000 tech bubble. In other words, because the enterprise value-to-sales ratio compares total valuation of a company to sales, the record high ratios show how ridiculously overpriced the market has been.

Record Enterprise-Value-to-Sales Ratios Shows Why Stock Market is So Unstable
Record Enterprise-Value-to-Sales Ratios Shows Why Stock Market is So Unstable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Brad Lamensdorf

Brad Lamensdorf, the founder and portfolio manager of Active Alts, is a principal and co-manager of the AdvisorShares Ranger Equity Bear ETF. He previously managed a long-short investment partnership from 1998-2005 under the name Tarpon Capital Management. Earlier in his career Mr. Lamensdorf was an equity trader/market strategist for the Bass Brothers’ trading arm. He managed a short only portfolio in addition to co-managing a $1bil hedging program. He also served as in-house market strategist for the entire internal and external network of Bass Brothers money managers.

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