It earned 31 cents a share the past 12 months. P-E shows a stock's price relative to its past 12 months' earnings, so it's a measure of how much investors are paying for a company's earnings. By that measure, Qualcomm is pricey indeed. Qualcomm at least has earnings. Many Internet stocks have no earnings, and investors are looking at a company's stock price times its revenue.
Most investors expect tech companies to post red-hot earnings eventually.
If they do, all will be well. But disappointing earnings can cut a stock's price in half, and quickly. Wall Street is bringing new Internet and technology companies to market at a frenetic pace. So all that the company's founders are risking is their time, he says. That much competition means many new companies eventually will disappear.