In this article, I have chosen five stocks that are believed to be overpriced on the basis of their earning reports, future prospects, and price history. These stocks are extremely risk to even HOLD on to and it is suggested that you sell these stocks if you already own them or assume a short position to make a killing.
As always, please use my analysis as a starting point for your own research.
Amazon (AMZN) is a well-renowned online retail vendor that serves its consumers by meticulously focusing on price, selection, and convenience. The website is designed to offer millions of different products on sale both by the company and third party vendors.
The company is going through tough times and both their last earning reports were extremely disappointing. Even though the stock has managed to rebound after each fall but it will not be able to fight off the disappointing performances of the company for long. Amazon is excessively on relying on revenue growth which just isn’t there. The business model of the company is focused on low margins and EPS has failed to record growth. On the contrary, the stock price has increased excessively and thus the stock is highly overpriced.
Analysts were expecting yearly revenues of around $65 billion before the quarter’s result were announced. However, after the results, the expectations have fallen to $63 million and may fall even lower as the performance of the company continues to decline. The EPS expectations have fallen from over $2 to just $1.3.
The current price of $180 isn’t justified and the financial indicators suggest that the stock price is going to fall. Therefore, it will be prudent to SELL or go short on the stock of AMZN.
Baidu (BIDU) is a Chinese company that provides a vast web solutions related to internet search and online marketing.
BIDU has a market capitalization of over $49 billion and an average trading volume of 6.40 million. The stock is currently trading at a price of $133 and is on its way down after reaching its 3 month high earlier in February.
The company’s stock price increased considerably before the publishing of its earnings reports due to the positive expectations of investors. However, the earning reports caused the stock to fall primarily because of the concern over the 50% increase in the workforce since last year. This will mean that the expenditures of the company will increase in the future and as a result earnings will suffer. The headcount of Baidu is further expected to increase in the future and subsequently the stock price is further going to decrease.
The performance of the company is excellent compared to its competitors GOOG and SOHU. BIDU has managed to increase their market share and has far superior financial indicators comparatively. However, this must be taken into account that the stock has risen 30% since December and the earning reports suggest that the company is expanding aggressively which increases the risk of the company considerably. The growing expense is another bad news for the investors and therefore the share is definitely extended and should be avoided – SELL.
Lululemon Athletica (LULU) is a major designer, manufacturers, and distributor of athletic apparel and related accessories. They operate in three countries – United States, Canada, and Australia.
The stock is currently trading at $65 per share and should not be bought at this price. The major concern related to the stock is the fact that many insiders have sold off stock worth millions of dollars in 2012. This shows that even the insiders of the company are not confident of the stock price going higher.
The stock is definitely overpriced if you consider the valuation based on Price to earning and other related multiples. According to the 5 year valuation range, the stock is trading at the top and if you consider the fact that it is trading at 17 times its book value, this indicates that the stock price is going to fall sooner or later. It will be the wise thing to sell or short the stock of LULU.
Yingli Green Energy (YGE) is a leading Chinese solar energy company that is renowned for their brand Yingli Solar. It caters to a many markets that primarily include Germany, China, Italy, Spain, and the United States.
Market capitalization at the current price is almost $692 million and the average trading volume is close to $5 million. The stock is currently trading in the market at around $4 per share. The 52-week low-high trading range is nearly $3 to $13 and this suggests that the stock is almost at rock bottom right now. This isn’t surprising if you consider the fact that the solar sector is declining. Furthermore, the beta of 3.11 suggests that the stock is extremely risky and should be avoided at all cost when the overall sector is suffering.
There are many concerns related to the solar sector and the biggest one is related to Germany, which is the biggest solar power importer in the European market. It is expected that the subsidy of imports related to solar power is going to face a major cut that can range from a reduction of 10% to 35%. This is definitely going to hurt the solar panel market.
It is suggested to avoid the solar power sector altogether considering the current market scenario – SELL.
Gap (GPS) is a global retailer that deals in a large variety of specialty apparel, personal care products and accessories. GPS has many well renowned and prestigious brands that include Old Navy, Gap, and Banana Republic.
The market capitalization of the stock is over $11 billion and the average trading volume is almost 5.7 million. The stock is currently trading at $22 and is at the high end of the 52 week low-high range of $15 to $23. This means that the stock is currently at its maximum level and experts are divided on the opinion regarding GPS. The positive point about GPS is the dividend yield that is almost 2% and has increased over the years. However, it can’t be ignored that the stock of Gap is overpriced and experts believe that the price target of GPS is $17.
There is considerable risk related to cost and the fact that GAP is operating in the highly volatile industry of fashion apparel. The share is believed to be overpriced and trading at the high end of the 52-week range – SELL.
About the author:I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.