FAANGM (Facebook, Amazon, Apple, Netflix, Google and Microsoft) are the new darling of the market and explain why there is such a discrepancy between the market and the general economy.
Luckily for us Yardeni has compiled a great book of data on the subject. FAANGM stocks are now 24% of the S&P 500 market cap something that increased during the Covid-19 crisis.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-capi.png)
We have therefore a stronger and stronger impact on the S&P500 performance as a whole.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-perf.png)
But does that performance impact the valuations? It’s a yes as the P/E ratio of the S&P500 is inflated by 2.5 thanks to the FAANGM.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-pe.png)
FAANGM stocks are expensive from a P/E ratio perspective. Is the forward growth high now than 5 years ago?
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-per.png)
FAANGM were never cheaper when evaluated through the lens of the P/S (Price / Sales) ratio standing above 5x.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-ps.png)
Looking at each stock, most of those are increasing except Facebook. Most of the growth in on Microsoft (P/S at 9x).
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-ps-detail.png)
Looking at the P/E ratio we have a similar story. While microsoft traded at 10x earning in 2013, it’s now 30x.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-pe-detail.png)
Interestingly, the FAANGM stocks have a good amount of buybacks (around 2% per year). From a flow of funds perspective we can ask ourselves what will happen when the buyback stop.
![](https://financialnarratives.com/wp-content/uploads/2020/05/faangm-buybacks.png)
Another point is that Google, Microsoft and Amazon are in the cloud business. While the margins are currently quite fat, we can expect that it will become a commodity. Nothing that could command a P/S of almost 10x as it seems currently.
Could the FAANGM be the nifty-fifty of the new decade? P/E ratio is around 37x (with a Covid-19 impact), still a long way to go to 50.
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