gaby lapera: so, the other kind of aspectto share prices is -- we covered the global economy, we covered internal things. sometimes,share prices are higher than the book value of the company because people see enormousroom for growth. and we're really talking tech stocks here, that's something that happensa lot with them. so, for example, amazon. right now, we looked it up this morning, it'sp/e was 462 this morning. correct?
apple stock pe ratio, john maxfield: yeah, i think that's what wesaw. it was a pretty big p/e. lapera: that's huge! that's so much! what'sa typical one for a bank? 18 or something? maxfield: yeah. i think the s&p 500, i thinkthe average p/e ratio on the s&p 500 right now is 20 or 21.
lapera: right. and of course, things varyby industry. but 462 is high, regardless of what industry you're in. but a lot of peoplesee a lot of potential in amazon, so they're willing to pay a premium for those stocks,despite there not being the present, perhaps, value for them. maxfield: right. and just to clarify one thing,it's not so much that the stocks, their market capitalization are higher than their bookvalue. really, what we're talking about here is, you're on a continuum, in terms of whatyou're paying for a stock. and what your p/e ratio tells you -- this is the way you canthink about it -- if your p/e ratio is 20, that means you're paying $20 for every $1of current earnings in that company. so, if
your p/e ratio is 5, then you're paying $5for every $1. so, the higher the p/e ratio, the more speculative the stock. and in amazon's case, it's not like amazonis a speculative company. we're talking about the big four. gaby, you buy on amazon, i'msure, all the time. i buy on amazon all the time. the issue with amazon is that theirsuccess and their growth and their revenue is not reflected in their bottom line, becausewhat bezos does -- and bezos has got to be, i mean, on the shortlist of the best ceosin the country, and this is one of the reasons -- he's taking all of that money they're earningand he's recycling that back into growth. that's why it's not hitting the bottom line,and that's why their p/e ratio is so high.
lapera: yeah. but let's -- you're absolutelyright. sorry, i kind of transitioned into the next thing without acknowledging the factthat you're super right on that. maxfield: did i put you to sleep? (laughs) lapera: no! (laughs) i was actually thinkingof another tech stock which kind of highlights the risk, perhaps, would be the right word-- gopro. when it first went public, its p/e was insane shares for super expensive, andi have it pulled up on my screen right now, they're currently trading at $11.13 per share,and their p/e is 9.12. so, that's one of the things that you do sometimes see with thesecompanies with these huge p/e values that seem to be a little bit, in terms of stockprice, over-valued -- sometimes, they do go
down. that is a danger with these. maxfield: yeah. and the other thing -- i thinkthat's a great example, i'm glad you brought their p/e ratio up, because what that alsoshows us is that, in a case like gopro vs amazon, there is much more going on behindthe p/e ratio. so, yes, the p/e ratio is a good entry to get a good idea of what's goingon, but then you really have to look what's beyond it. in amazon's case, its cashflow.in gopro's case, it's -- how i would couch that is, their problem is that they're over-relianton a single type of product that they're selling.
