Is it time to be nervous over Nasdaq?

Associated Press

NEW YORK

The Nasdaq finished within 25 points of its highest level in a decade Friday, reminding investors of a time many would rather forget: the bursting of the dot-com bubble.

Today, tech is hot again. Facebook — which hasn’t even gone public yet — is worth some $50 billion. Online content company Demand Media rose 33 percent on the day of its initial public offering last month. The Nasdaq composite index closed Friday at 2,834, still only a little more than half its all-time closing high of 5,049 in March 2000. The index of mostly tech stocks is up 26 percent over the past 12 months.

Should investors be worried about another bubble? Not really, because this time, technology companies are making money and may be valued correctly.

“It is night and day compared to 10 years ago,” says Barry Mills, manager of the $400 million Dreyfus Technology Growth fund. “These business models are real. The revenues are real, and the cash flows are real.”

Consider this: Judging by diluted earnings per share, a conservative method of valuing what a company’s stocks are worth, the companies in the Nasdaq index were collectively earning $39.28 per share in December 1999 and priced at 103.6 times their annual earnings. Now, the index has diluted earnings per share of $127.64 and a price- earnings ratio of 22.11.

The economic recovery in the U.S. is one reason that technology companies are earning such high profits. International growth is another reason to be optimistic.