Published: Monday,
17 Sep 2012 | 11:56 AM ET
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By: Herb Greenberg
CNBC Senior Stocks Commentator
CNBC Senior Stocks Commentator
With the market having rallied so
strongly since June, it’s only natural to ask: Which widely held high-flyers are
at risk of falling?
 |
To make my cut, the company’s
shares had to outperform the S&P 500
[.SPX 1461.19 --- UNCH (0)
]
for the past three months. And their price-to-book value had to be
higher than their peers.
]
for the past three months. And their price-to-book value had to be
higher than their peers.
On top of that, they had to
generate good revenue and earnings growth with other metrics flashing good
performance.
In other words, no matter what you
may think of the company, the shares may merely gotten ahead of themselves.
Using screens from
AnalytixInsight, which uses algorithmic computer-generated screens, I narrowed
that list down to three: Rackspace
[RAX 65.51 --- UNCH (0)
]
(managed hosting), Lululemon
[LULU 77.40 --- UNCH (0)
]
(yoga clothes) and Polaris Industries
[PII 85.00 (---)
]
(snowmobiles and all-terrain vehicles). Their stocks have shot
higher despite slowing revenue and earnings growth relative to a year ago.
(Read More: Cramer's 5 Retailers Poised to Push
Higher.)
]
(managed hosting), Lululemon
[LULU 77.40 --- UNCH (0)
]
(yoga clothes) and Polaris Industries
[PII 85.00 (---)
]
(snowmobiles and all-terrain vehicles). Their stocks have shot
higher despite slowing revenue and earnings growth relative to a year ago.
(Read More: Cramer's 5 Retailers Poised to Push
Higher.)
Herb GreenbergSenior Stocks
Commentator
For the two additional stocks, I
checked in with to Jeff Middleswart, who runs Behind the Numbers, an accounting
research service.
Asked for a few names, he shot
back: “That's easy” — Tiffany
[TIF 64.98 (---)
]
. Its stock is up 30 percent after missing and cutting guidance and
its key growth markets are now negative.
]
. Its stock is up 30 percent after missing and cutting guidance and
its key growth markets are now negative.
“And CarMax
[KMX 31.93 --- UNCH (0)
]
," he added. "It missed three quarters in a row and there simply
are not late model used cars for them to sell. They’ve already seen
flat-to-negative volumes and weaker margins several quarters in a row.”
(Read More: Obama Good for Business: CarMax
Co-Founder.)
]
," he added. "It missed three quarters in a row and there simply
are not late model used cars for them to sell. They’ve already seen
flat-to-negative volumes and weaker margins several quarters in a row.”
(Read More: Obama Good for Business: CarMax
Co-Founder.)
My take: This doesn’t mean these
stocks will tumble tomorrow, if ever, but all signs suggests fundamentals may
have overshot reality.
—By CNBC's Herb Greenberg
RAX stock has been moving up every time there
has been a positive news announcement about OpenStack. This is a open source
cloud "operating system" software movement that RAX helped to found. However,
RAX receives no revenue and they make no profits from Open Stack adoption. One
day they hope that users of Open Stack will use RAX cloud services. RAX is
deploying Openstack in its data centers to enable scalability and lower
operating costs to try and compete with AwS.
I think there is confusion as to the actual business model of this company. Even if RAX becomes a preferred vendor for users of Open Stack it will take a number of quarters to see any revenue that is meaningful. Meanwhile, managed hosting revenue (75%) is only growing 3-4%. Public Cloud revenue growth has been 80+% but this is where Amazon AwS competes. It is a commodity business really. This story reminds me of Sun Micro in the year 2000. The stock price does appear ahead of the business model earnings and cash flow.
I think there is confusion as to the actual business model of this company. Even if RAX becomes a preferred vendor for users of Open Stack it will take a number of quarters to see any revenue that is meaningful. Meanwhile, managed hosting revenue (75%) is only growing 3-4%. Public Cloud revenue growth has been 80+% but this is where Amazon AwS competes. It is a commodity business really. This story reminds me of Sun Micro in the year 2000. The stock price does appear ahead of the business model earnings and cash flow.
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