Goldman Sachs analyst Christian Mueller-Glissmann said Thursday that unprofitable tech companies remain vulnerable to further selling, despite the massive declines that have taken place so far in 2022.
Speaking to CNBC, the head of asset allocation research at Goldman Sachs argued that using historical models from the dot-com crash of the early 2000s suggests that valuations for more speculative tech stocks have further to fall.
“I think we’re still above the trough which you’ve seen during the tech bubble and it makes that space still a bit vulnerable,” he said.
Mueller-Glissmann pointed to figures showing that the enterprise value-to-sales ratio peaked at around 4 during the tech bubble, roughly the same mark hit during the COVID stock rally. He noted that the dot-com collapse brought the EV-to-sales ratio to 1, while that figure for today’s market still hovers around 2, suggesting that more contraction could take place.
While shares of unprofitable tech companies remain risky, Mueller-Glissmann contended that there was “a lot of value emerging” in quality growth stocks.
“The tricky part now … is to try to avoid things that don’t have a valuation flow, that don’t have a fundamental story that can stabilize them in the next few years,” he stated.
Last year, Goldman created an index to track the performance of non-profitable tech stocks. The top ten names on the list included Plug Power (PLUG), Pinterest (PINS), Teladoc (TDOC), Nio (NIO), Bilibili (BILI), Roku (ROKU), Peloton (PTON), Snap (SNAP), Cloudflare (NET) and CrowdStrike (CRWD).
CRWD has proven to be the most resilient of this group in 2022, outperforming the overall market but still falling more than 11%. Meanwhile, each of the other names has dropped at least 30%, with NET, SNAP, PTON, ROKU and TDOC all losing more than 60% of their value so far this year.
For more on CRWD, see why Seeking Alpha contributor Juxtaposed Ideas characterizes the stock as “a bargain” but still isn’t ready to call a bottom yet.
Read More: Speculative tech stocks are still vulnerable to further declines – Goldman Sachs analyst