The total stock market valuation for all the Silicon Valley 150 companies is still high by some traditional measures. The overall price-earnings ratio for the SV150 companies in 2000 was 42.6. That's higher than the PE average of the 1990s of 40.9 and much higher than the average of 25.6 for the slower growth years of 1989 to 1997, before the economy began to bubble. The erosion of profits has happened so fast that it has made it difficult to know what a reasonable price for the top SV150 companies should be. It currently has a very low PE ratio of 13.75, but now that the average estimate of analysts is that it will earn 68 cents a share, its PE rises to 33.
Some Internet companies remain particularly vulnerable to a fall.
Yahoo's stock looks reasonable based on its relatively good earnings of 5 cents a share this year, but for 2002 with it expected to break even, its price-earnings ratio shoots to 276. The fallout of these declines in stock value is primarily felt by investors and the employees who own stock. For companies like Cisco that have used their stock to buy other companies, little has changed because other the value of other companies has fallen too. For bellwether Cisco, now is the time to absorb the companies they acquired over the past two years. Even though investors have lost money, one benefit from last year's soaring stock market valuations is that it stimulated the adoption of new technologies, such as broadband communications and the Internet itself.