In the past month, I've written a series of articles related to low-priced stocks to buy and low-priced stocks to avoid. These articles each focus on three stocks currently priced at under $10 per share that I believe worthy of buying or avoiding. Using the same format, I am going to write a series of articles on high-priced stocks worth or not worth their current price tags. These articles will focus on stocks currently priced at over $100 per share.
For this article, I will outline and review three stocks I think are currently NOT worth their current prices and should be avoided. In determining why I think these stocks should be avoided, I will be looking at each company's financial performance, current valuation, recent trading activity, earnings and future outlook.
Stock No. 1
Alexanders, Inc. (ALX) is a REIT that leases, manages, and develops properties in the New York City metropolitan area. It was founded in 1955 and is based in New Jersey.
|Profit Margin (Trailing Twelve Months)||343.31%|
|Return on Assets (Trailing Twelve Months)||3.72%|
|Return on Equity (Trailing Twelve Months)||14.85%|
|Revenue (Trailing Twelve Months)||193.21B|
|Revenue per share (Trailing Twelve Months)||37.82|
|Quarterly Revenue Growth (Year Over Year)||0.90%|
ALX has a current cash balance of 331.87M compared to a debt level of 1.06B with a debt to equity ratio of 317.55.
Current Valuation and Recent Trading Activity
ALX is currently trading at $292.03, $182.72 shy of its 52-week high and just $14.03 higher than its 52-week low. ALX is trading below both its 200-day moving average of $312.43 and its 50-day moving average of $302.26.
ALX has a price-to-earnings value of 13.3x and a price-to-book value of 4.5x, with earnings per share of $18.38.
ALX recently reported earnings per share of $3.98 for Q2 of this year. This was a sharp decline compared to earnings per share of $5.37 for the same period last year and continues a trend of reduced earnings.
Alexanders, Inc. stock price has fallen over 35% over the past year. With declining earnings and no signs pointing to a turnaround, there is little evidence that ALX's price won't continue to fall. Add in the fact that ALX operates in an already risky industry, I recommended avoiding this stock until ALX shows an indication that it can reverse the trend of declining earnings.
Stock No. 2
The Sherwin-Williams Company (SHW) is one of the largest paint companies in the world, operating as a manufacturer, distributor and retailer of paint, coatings and related products. SHW was founded in 1866 and is headquartered in Cleveland, Ohio.
|Profit Margin (Trailing Twelve Months)||6.97%|
|Return on Assets (Trailing Twelve Months)||10.72%|
|Return on Equity (Trailing Twelve Months)||39.71%|
|Revenue (Trailing Twelve Months)||9.71B|
|Revenue per share (Trailing Twelve Months)||95.40|
|Quarterly Revenue Growth (Year Over Year)||5.50%|
Net sales increased 3.6% for the first six months of the year. The company expects an increase of 6% to 9% in Q3 and issued in line guidance for the rest of the year.
Current Valuation and Trading Activity
SHW currently has a price-to-earnings value of 25.3x and a price-to-book value of 10.2x with earnings per share of $7.03. SHW is trading at $177.84, $16.71 lower than its 52-week high and $41.34 higher than its 52-week low. SHW is trading above both its 200-day moving average of $175.10 and its 50-day moving average of $177.77.
For Q2 of this year, SHW reported earnings of $2.54 per share, which was an increase over the same period last year, but a bit lower than the estimate of $2.58 per share. SHW has a five year earnings growth rate over 8%.
I think the future of SHW is actually pretty solid. The company recently raised its dividend and reported record sales. However, I think it is currently way overvalued. The current price to earnings of 25.3x is significantly higher than its historical average of 15x and is also higher than the majority of SHW's peers.
I believe that SHW can become a solid long term investment, but I think it needs to come down in price quite a bit before it gets there. At its current price, the downside risk far outweighs the upside potential of the stock. If the stock falls under $150, then I think it becomes much more attractive as a potential long term holding.
Stock No. 3
The Dun & Bradstreet Corporation (DNB) is a provider of business information worldwide. The company's information and technology solutions are used by banks, credit and financial institutions, manufacturers, wholesalers, retailers, government agencies, and other companies.
|Profit Margin (Trailing Twelve Months)||17.40%|
|Operating Margin (Trailing Twelve Months)||28.33%|
|Revenue (Trailing Twelve Months)||1.64B|
|Revenue per share (Trailing Twelve Months)||39.14|
|Quarterly Revenue Growth (Year Over Year)||0.70%|
DNB has had relatively flat revenue growth over the past several years ($16.87M in 2009, $16.77M in 2010, $1,759M in 2011, and $16.63M last year). This pace is set to continue this year as well.
Current Valuation and Trading Activity
DNB has a price-to-earnings value of 15.2x and a price-to-sales value of 2.6x.
DNB is currently trading at $107.61, $4.50 lower than its 52-week high and $37.23 higher than its 52-week low. It is trading above both its 200-day moving average of $91.93 and its 50-day moving average of $103.86.
For Q2, DNB reported earnings per share of $1.53, $0.03 higher than the $1.50 estimate. DNB has a 8.66% one year growth rate and a 8.50% five year growth rate.
DNB pays a steadily growing, low yielding quarterly dividend. The dividend appears safe, as DNB has a low payout ratio. The price of DNB's stock has increased significantly in the past four months (from $79.96 on 3/08 to its current price of $107.61), gaining $27.65 (nearly 35%) during that time. With DNB's flat revenue, single digit earnings growth, and a negative book value, I think DNB is currently overvalued. Because of this, I recommend avoiding this stock at its current price.
Each of the three stocks reviewed above (ALX, SHW, and DNB) have high stock prices. In my opinion, the three stocks are currently overvalued. ALX has seen decreased earnings recently, and while the stock has lost value this year, I still think it is overvalued. SHW and DNB have seen earnings growth, but the price to earnings of both companies are high (especially in the case of SHW). I believe the potential upside for both of these stocks is extremely limited.
At current prices, I recommend avoiding these stocks as long term holdings. Earlier, this week I published an article about three stocks worth their high price here. I plan on submitting future rounds of these articles in the weeks to come that review high priced stocks to buy or avoid.