"In our opinion what we are seeing today is not a new valuation paradigm; we seem to be in the middle of another good-old fashioned bubble," he says in a recent report.
Mitchell says it is hard for local investors to grasp the potential when they look at the price to earnings multiples and say, "these stocks are growing at 20 per cent plus and look expensive compared to other companies growing at the same rate".Michele Mossop "You need to make sure that the adoption curve is playing out, because if the acceleration slows then that’s a real risk given a discounted cash flow valuation is based on a multi-year time period,” he says.
The move from the ASX's third-most valuable company underlines why both sides agree that these high growth stocks have great potential. The issue seems to be whether they are worth the price. But Investors Mutual's Whittaker points out that Afterpay is not a great example of the network effect because it needs to find finance for each new customer that uses its service, unlike eBay and Google.
Eleanor Creagh, a markets strategist at Saxo Capital Markets Australia, says companies like Appen, Afterpay and Altium which have been bid up significantly year to date as bond yields have collapsed.