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"They're going to grow into their valuations," Mr. Garcia said.
But the limited price signals available also suggest low confidence in their valuations.
Stocks can become more vulnerable to declines when their valuations climb to historical highs.
On average, they said it would lower their valuations of firms listed there by 13%.
Part of the problem is the optimistic assumptions that analysts built into their valuations.
Their valuations are based on the number of customers they can get and their future value.
Level 3 securities trade infrequently and don't have readily observable values, allowing bankers the most leeway in their valuations.
Start-ups can no longer put their business plans up for auction, and their valuations have therefore dropped significantly.
"I don't think the banks can earn what they are expected to earn relative to their valuations," he said.
THE recent surge in small-cap stock prices has made large caps attractive in another way: their valuations are cheaper.
These high-growth companies were supposedly stable and worth buying even when their valuations approached 100 times earnings.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com