Silver More Overvalued Than The Internets Of 1999

The precious metals "secular" rally might actually end sooner than I originally thought. It won't take a few years. It won't even take a year. This is a replay of 1980 for silver. It is now reaching the parabolic blowoff phase, similar to what oil did a few years ago from 100 to 147, and an exact duplicate of what silver did in 1980. Silver rally will probably end at near 50, a 50% upside from here. Will there be some sort of government intervention (resulting in silver's collapse) when it gets up there? Highly likely.

Now, I've looked at the valuation of stocks like SLW just based on the kind of revenue growth they are generating. Revenue for SLW was about $360 million last year, growing at 33% year over year. The impressive thing is their profit margin, which is near 60%, owing to the rise of the silver commodity. In many bull markets, that kind of growth and profit can garner a valuation of $15 billion market cap, as SLW does.

However, unlike many other bull markets, silver is different. For most companies, continued expansion of market cap is normally due to increase product offerings going to more and more people. I don't see that in silver. Growth and income are rather temporary if you think about it.  If the world is running out of silver (or at least most are being hoarded by individuals and investors at this time), where are these silver companies going to find more silver to justify their P/E's?

As such, this makes SLW and its ilk, extremely overvalued. I would say they are even more overvalued than the internets back in 1999. Some Internets then were making money, and they had a lot of future (many years down the line) potential. Even those that weren't making money (like Amazon.com) had lots of future potential expected many years down the line.

However, the current inflated silver and gold  prices are very temporary. As such, this puts their valuations at nosebleed bubble levels only rivaled by the nonsense such as the Tulipmania. SLW's p/e is at 72 right now, but if you consider it has no future (meaning it will never be producing as much silver as its current p/e suggests), you can see what kind of ponzi fume this thing is running on.

50% more upside is what I think will be the ultimate end to the silver bubble. Now, if you knew there's a good chance a $34 stock, any stock, has only $16 upside before it all ends, what would you do? Not such a great investment; perhaps a good trade. If I knew KO (currently trading at $60) has another $30 to it before it all ends, I'd likely start finding myself a new investment. You would too.

It's a good idea to start locking in some silver profits on the way up (if you own silver), never to re-enter with those profits.  I know many will want to sell everything they have and go all-in silver as this bubble inflates more. Be careful out there. It could all end overnight with the government's magic wand.