OPINION

Will Hundred-Dollar Stocks Kill E-Commerce Again?

Don’t look now, but at least one e-commerce stock has quietly clawed its way back up the price ladder. Before long, it and others may be flirting with the US$100 level again.

The problem is that triple-digit stock prices already killed e-commerce once. Will it happen again?

Money Changes Everything

A few years ago, a hundred-dollar stock would have been quite unremarkable. Back then, the question was which e-commerce company would be next to achieve a $500 stock price.

Now, though, the only question is whether the current price increase is just another bubble, waiting to blow up in the face of anyone who gets too close.

The stock with an outside shot of hitting the century mark is Expedia.com. The company’s share price has climbed slowly but steadily to $73 from a low of less than $20 last fall, when travel stocks bottomed out.

In today’s market, that’s still a far cry from a Benjamin per share, but Expedia is moving in the right direction.

Of course, what analysts love to call “the fundamentals” are completely different. Expedia is profitable now and has been taken under the wing of an even larger, more profitable company, USA Networks.

Microsoft also still owns a chunk of the travel firm. That’s a decent pedigree for a stock.

Chain Reaction

But the hundred-dollar level is a psychological threshold that must be considered apart from basic stock-pricing rules.

Hundred-dollar stocks say at least as much about the investing public and the public in general as they do about a company. They make people feel rich, even if they’re not — even if they don’t own shares, for that matter. They make everyone feel more optimistic.

And they’re contagious. Leaving aside for a moment the idea that analysts fueled the last stock bubble for less-than-savory reasons, consider that as Amazonand eBay flew to the stratosphere, companies with much less stature and much shakier business plans also traded at crazy levels.

Spillover Perils

It makes sense: If you can’t afford to buy Expedia, buy the next best thing. That mentality hasn’t reared its head lately, though. Pricelineand even Travelocity lag well behind Expedia in the travel sector, which, despite lots of good news, is clearly headed for some changes.

But turn Expedia’s stock price into a triple-digit figure and people might start seeing dollar signs again. They might start speculating again.

Speculation leads to bubbles, and when bubbles burst there’s nowhere to hide. Few would argue that in the mess left behind after the last crash, some companies with reasonable chances of success under normal conditions became victims of capitalism’s fickle nature.

So as tempting as it might be to see e-commerce stocks trading at sky-high levels again, the lure must be resisted. As unglamorous as normalcy is, it may be best to plod along with the rest of the pack, gaining ground over time but not climbing so high that the air gets too thin and the sun burns too hot.

What do you think? Let’s talk about it.


Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.


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