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Opinion
Nir Kaissar

Tech Stocks Are in a Bear Market, But They Aren’t Cheap

Although the Nasdaq Composite Index has dropped about 30% since it peaked in November, it hasn’t reached the bargain bin. 

The Nasdaq’s forward price-earnings ratio is just back to its historical average.

The Nasdaq’s forward price-earnings ratio is just back to its historical average.

Photographer: Michael Nagle/Bloomberg

It has been a rough few months for US stocks but even rougher for shares of technology companies. The widely followed and tech-heavy Nasdaq Composite Index is down about 30% since it peaked in November. Investors may be wondering whether tech stocks are a bargain. The answer is no: They’re a lot cheaper but not cheap yet.

One way to measure tech’s decline is to track how much valuations have contracted. The Nasdaq’s forward price-earnings ratio — that is, the P/E ratio based on analysts’ earnings estimates for the current fiscal year — has tumbled to 24 from 42 at the end of 2020, a 43% haircut. While that’s a big move, it merely brings the Nasdaq in line with its historical average P/E ratio back to 2001, the longest period for which numbers are available.