I've recently 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. Round 1 stocks can be found here.
Stock No. 1
Athenahealth, Inc. (ATHN) is a leading provider of Internet-based business services to physician and medical group practices. Athenahealth, Inc. was incorporated in 1997 its headquarters is in Watertown, Massachusetts.
|Profit Margin (Trailing Twelve Months)||0.09%|
|Return on Assets (Trailing Twelve Months)||1.01%|
|Return on Equity (Trailing Twelve Months)||0.14%|
|Revenue (Trailing Twelve Months)||494.09M|
|Revenue per share (Trailing Twelve Months)||13.57|
|Quarterly Revenue Growth (Year Over Year)||41.30%|
Current Valuation and Recent Trading Activity
ATHN is currently trading at $109.11, $8.43 shy of its 52-week high and $52.78 higher than its 52-week low. ATHN is trading above its 200-day moving average of $95.58 and just below its 50-day moving average of $109.28.
ATHN is trading at a price more than 100 times its earnings and with a price-to-book value of 12.0x, with earnings per share of $0.26.
ATHN reported Q2 earnings per share of -$0.26. This was a big miss compared to the $0.08 earnings estimate and makes the company's one-year earnings growth rate negative.
While ATHN's revenue has continued to increase, the company hasn't been able to translate these increases to its bottom line. Earnings were flat last year compared to 2011 and are on pace to drop this year. I think ATHN's revenues look to continue growing, but I don't believe they are going to grow at a fast enough pace to allow significant increases in earnings over the coming years, at least not enough earnings to justify the stock's current price. If the stock falls back to the mid to low $80s level it was trading at a few months ago, then it might be worth taking another look at.
Stock No. 2
Intuitive Surgical, Inc. (ISRG) designs, manufactures, and markets da Vinci surgical systems, and related instruments and accessories to hospitals and healthcare systems through the United States and internationally. The company was founded in 1995 and its headquarters is in Sunnyvale, California.
|Profit Margin (Trailing Twelve Months)||30.22%|
|Return on Assets (Trailing Twelve Months)||14.84%|
|Return on Equity (Trailing Twelve Months)||20.47%|
|Revenue (Trailing Twelve Months)||2.34B|
|Revenue per share (Trailing Twelve Months)||58.43|
|Quarterly Revenue Growth (Year Over Year)||7.80%|
Sales of machines have seen a recent decline for ISRG with sales dropping 5% compared with last year. In Q2, overall sales grew by 7%, but this was below estimates and a big drop compared with the double-digit growth ISRG has seen for the past few years.
Current Valuation and Trading Activity
ISRG currently has a price-to-earnings value of 22.7x and a price-to-book value of 4.2x with earnings per share of $17.17. ISRG is trading at $391.69, $193.98 lower than its 52-week high and $34.67 higher than its 52-week low. ISRG is trading below both its 200-day moving average of $479.03 and its 50-day moving average of $399.37.
Earnings for ISRG have increased steadily over the past several years; however, they have slowed considerably recently. In Q2, ISRG reported its first earnings miss since 2009 when it reported earnings of $3.90 per share.
I think there's a chance that ISRG's disappointing revenue and earnings will be temporary; however, I view ISRG as a growth stock. So I expect to see growth. When there is no dividend and the stock isn't undervalued (which I don't think it is), I see no reason to take a chance on it at its current price.
ISRG's CEO stated that he sees increasing pressure on sales. The company has seen a rise in recent legal challenges as there have been questions regarding the safety of some its machines and several analysts and firms, such as S&P, have recently downgraded ISRG. All in all, I think the risks far outweigh the rewards when it comes to this stock at the moment.
Stock No. 3
PetroChina Company Limited (PTR) produces and sells oil and gas in China, operating in four segments: Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline. The company was founded in 1988 and is based in Beijing, China.
|Profit Margin (Trailing Twelve Months)||5.28%|
|Operating Margin (Trailing Twelve Months)||8.21%|
|Revenue (Trailing Twelve Months)||358.80B|
|Revenue per share (Trailing Twelve Months)||196.30|
|Quarterly Revenue Growth (Year Over Year)||7.60%|
PTR has seen steady increases in revenue and profit since 2009.
Current Valuation and Trading Activity
PTR has a price-to-earnings value of 10.4x and a price-to-book value of 1.0x with earnings per share of $10.48.
PTR is currently trading at $111.74, $34.94 lower than its 52-week high and $12.46 higher than its 52-week low. It is trading lower than both its 200-day moving average of $122.94 and its 50-day moving average of $116.54.
PTR's earnings have remained fairly flat with a slight decline over the past several years.
The company is on pace to have similar earnings this year as well.
Just like the company's earnings, PTR's stock price has been fairly flat over the past several years. On 2/16/10, PTR's stock closed at $112.44. Today, the stock closed at $111.74. That's not what I like to see when looking at the price of a stock over the course of the past three years. Between the fact that company executives are being investigated for corruption and the fact that PTR continues dealing with aging oil fields, I don't feel confident that a turnaround is on the way for PTR.
I think rising gas prices could help some, but considering the Chinese government dictates what price PTR can sell refined gases for, its not a long-term solution to PTR's flat earnings. I think PTR could be a decent pick up for someone who is just looking to diversify internationally while picking up a decent dividend, but for anyone looking for stock price appreciation, I would avoid adding this stock to your portfolio.
Each of three companies reviewed above (ATHN, ISRG and PTR) have several challenges facing them and have had a hard time increasing earnings recently. I feel that ATHN and ISRG are currently overvalued and while I think PTR is fairly valued, I think better and more rewarding stocks exist in the energy sector to choose from.
At their current prices, I feel that these stocks should be avoided (with the caveat that PTR might make sense for certain individuals who are looking to diversify internationally). As always, I recommend investors perform their own research before making any investment decisions.