People Need People

In all this tech euphoria and COVID-19 quarantining, investors are missing a key fact. People need people. In the song, People, writer Bob Merrill, and composer, Jule Styne, wrote and composed it best:

People who need people,
Are the luckiest people in the world
We’re children, needing other children
And yet letting a grown-up pride
Hide all the need inside
Acting more like children than children

Barbra Streisand sang it best; academic studies prove that people who get normal human interaction have much better mental health. Despite this fact, investors have been scrambling to capitalize companies that benefit from people voluntarily imprisoning themselves in their own homes. Work from home (WFH), exercise from home, cook from home, movies from home, sports from home, and just about everything else from home is all the rage. Every newbie tech company attached to this phenomenon is capitalized at an enormous price-to-sales ratio (P/S) and a huge price-to-earnings ratio (P/E), if they have one.1

• Peloton (PTON) P/S: 12.6x; 348x P/E
• Shopify (SHOP) P/S 38.7x; 69.7x P/E
• Teledoc (TDOC) P/S: 31.1x; 95x P/E
• Amazon (AMZN) P/S: 4.5x; 148x P/E
• GrubHub (GRUB): P/S 4x; 249x P/E

To give you a feel for the premium in the pricing of these WFH stocks, we picked out a non-WFH stock, which is a glam growth stock for comparison. Here is Chipotle (CMG):

• Chipotle: P/S 3.3x; 69x P/E

Compared to the WFH stocks, CMG looks like a screaming bargain. Barbra Streisand’s song tells us that those who go to Chipotle and interact with a human are “the luckiest people in the world.” Something is very wrong here unless we stay imprisoned in our homes forever.

The song tells us what is wrong and so does security pricing. We are all “children” in need of social interaction with “other children.” We are “letting our grown-up pride” get caught up in owning expensive stocks which have gone up more after already being expensive. Our imprisonment and poor mental condition make us like Mo Green in The Godfather. Michael Corleone says that he is going to buy Mo out of his casino ownership. He says, “you think I’m skimming, Michael.” Corleone replies, “you’re unlucky!” People who don’t think they need people are “unlucky.”

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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