Domino Theory of valuations

Domino Theory of valuations. A new category of market darlings has been created: the tech mid-cap multinationals with scalable business models expanding offshore e.g. REA Group, Carsales, Dominos, Navitas etc. While we gaze longingly at the prospect of owning the rapidly growing future cash-flows from these great businesses, we feel that we may be very late to the party given the stratospheric multiples implied by their share prices. Of particular concern is the recent trend to what we call the Domino Theory of valuations, namely that a particular company's lofty multiple is justified by the fact that it is cheaper than its peer group, irrespective of the fact that the peer group is on very high multiples. While we have seen some significant unwinding of several Technology orientated valuations in recent weeks we are becoming increasingly concerned about the levels of volatility associated with these share price movements. -Rhett Kessler