I think the current investment environment is one of the toughest in history. Some tech valuations have gone crazy.
The Australian Financial Review has run a piece on the problems and fallout of the shelved WeWork IPO.
Just because technology is involved in a process doesn't mean the underlying process has changed – therefore you could argue it shouldn't trade at such a huge price.
WeWork is literally just leasing out office space. Uber is just arranging a taxi or food delivery. And so on.
These businesses have huge valuations, but will they make huge profits? I don't know about you but I'm seeing plenty of other ridesharing apps offering 'taxi' services at a lower (unsustainable?) cost for customers – that seems like a prime example of not much of a moat for Uber to me.
Investors levelled the same accusation about the valuation of Domino's Pizza Enterprises Ltd. (ASX: DMP) when the share price was above $70. It's a fine business with global growth, but it probably wasn't worth the earnings multiple that was being applied at the time three years ago.
I think there are some ASX tech shares that are worth their high price. They bring software that has truly changed how people operate. Look at the tools provided by Xero Limited (ASX: XRO) or Altium Limited (ASX: ALU) to accountants and engineers. Microsoft and Alphabet (Google) are two other good tech examples.
This low interest rate environment makes it harder to invest, particularly with investors chasing any growth (even if that growth isn't profitable).
Foolish takeaway
I'd much rather pay 39x FY21's estimated earnings for Altium rather than bet on one of these forever-loss-making businesses.
