Tech stocks may have more room to fall

April 8, 2014, 1:00 PM UTC
Randi Zuckerberg at Nasdaq

FORTUNE — For tech stocks, growth may no longer be coming at a reasonable price, even after the recent pull-back.

Technology stocks are down 6% since they peaked in early March. And that drop is larger than the dip in the general market during the same time period.

But that doesn’t mean there are bargains to be had. The average stock in the Nasdaq 100 (NDX) has a price-to-earnings multiple of 18, based on projected 2014 bottom lines. That compares to 16 for the S&P 500 (SPX). And that’s with the dip.

Technology stock believers say it’s unfair to compare the P/E ratios of the average large company to tech stocks. Technology companies tend to increase in earnings at a faster rate, so they deserve higher P/E ratios.

It would be more fair to compare technology stocks to themselves. Back in early 2001, the Nasdaq 100 had a P/E of 60, according to FactSet. So today’s 18 looks cheap.

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Here’s the problem: Technology companies, while still growing faster than the rest of the economy, are not increasing their earnings nearly as fast as they once were. That’s particularly true for the large technology companies that make up the majority of the market cap of the Nasdaq 100.

Microsoft (MSFT), for instance, is only expected to increase its earnings 3.4% this year. Income at Oracle (ORCL) is projected to rise 1.3%. Even with Apple (AAPL), analysts are only looking for a 2.8% bottom-line jump.

Back in 2001, analysts were predicting that the companies that then made up the the Nasdaq 100 would boost their bottom lines by 34% over the following year. These days, analysts are projecting a more modest 10% growth in earnings among Nasdaq’s 100 largest companies.

Another way to look at this is a ratio some call the GARP multiple, which was reportedly a favorite metric of mutual fund giant Peter Lynch. The name stands for Growth at a Reasonable Price, and the ratio compares a stock’s, or the market’s, P/E multiple to earnings growth. Back in 2001, the Nasdaq 100 had a GARP ratio of around 1.8. Today’s GARP multiple: 1.8.

Investors who bought into technology stocks in early 2001 thinking they were getting a bargain didn’t get one. The Nasdaq 100 fell another 33% that year. Today’s technology investors could be similarly disappointed.