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Burry: Tech Valuations Mask Hidden Costs
11 Apr
Summary
- Michael Burry claims Nasdaq 100 earnings are overstated by nearly 20%.
- Stock buybacks and taxes on vested shares inflate reported profits.
- Real price-to-earnings multiples are higher than commonly believed.
Investor Michael Burry has raised concerns regarding the true valuation of tech stocks, suggesting they are significantly more expensive than commonly perceived. His analysis indicates that Nasdaq 100 companies' earnings are overstated by approximately 20% under generally accepted accounting principles (GAAP).
Burry's research, which involved reviewing over 1,000 annual reports, highlights that the full costs associated with stock-based compensation, including share repurchases to offset dilution and net taxes from vesting shares, are not adequately accounted for. This omission creates an 'earnings illusion,' he contends.
Consequently, Burry states that the real price-to-earnings ratio for the Nasdaq 100 index is closer to 30, rather than the perceived 25. He further points out that Wall Street's forward earnings estimates are inflated by 42% when adjusted for these overlooked stock-based compensation costs, leading to a misrepresentation of shareholder value.
