Some See Deja Vu in Rally at Yahoo!

For Yahoo! (YHOO Quote) and other Internet stocks, it's flashback time.

Accompanying Yahoo!'s steady operational improvement, shares in the Internet bellwether have nearly quadrupled since last fall, echoing the Net stock boom of the late 1990s and putting investors in an optimistic mood for the company's second-quarter earnings announcement, which is due after the market's close Wednesday.

But with Yahoo!'s shares setting new 52-week highs on a near daily basis, investors have to wonder whether Yahoo!'s, eBay's (EBAY Quote) and other stocks' remarkable recent performance reflects any increase in fundamental value.

In fact, it's plausible that what's driving this rally are the same things that drove it back in 1999: A finite number of Internet shares in which Wall Street can invest, and a hunger for momentum, both of which trump rational caution about price-earnings ratios that look headed off the charts.

Thus, while Yahoo!'s progress could be regarded as a sign that the economy is indeed recovering -- a larger issue we at TheStreet.com hope to address through our new TheStreet.com 21 portfolio, of which Yahoo! is a component -- Yahoo!'s great leap upward could just as easily be interpreted by skeptics as signs of a retro-bubble market.

Shares in Yahoo!, which bottomed out at $8.94 last September, fell 17 cents to close at $35.10 on Tuesday.

Perfection?

That gives Yahoo! a price-to-earnings ratio, based on the Thomson First Call consensus for 2003, of 100. Meanwhile, eBay is trading at 78 times earnings, Amazon.com (AMZN Quote) is at 84 times, and the S&P 500 index is at 19 times.

These levels are hardly scaring off analysts. Prudential's Mark Rowen, for example, late last month raised his price target on eBay to $120, or 82 times consensus.

For the record, analysts are expecting Yahoo! to report $316.6 million in revenue for the second quarter ended June 30, and earnings per share of 8 cents. For the year, the current expectation is $1.28 billion in revenue and 35 cents of EPS.