This is my fourth article about stocks that seem significantly overvalued in the NASDAQ 100. You can find the previous ones in my profile. The proof of a bubble is a divergence between the price and fundamental metrics. This article is a quick evaluation of Yahoo Inc. (YHOO) from this point of view. My thesis is that YHOO is overvalued relative to the NASDAQ 100 universe. I think that investors should take their profits in the next rallies. This stock has a strong annual momentum and can go higher with seasonality in the next two months.
I will use various metrics. They are formulas with fundamental factors and weights. The score is between 0 (the worst) and 100 (the best).
Here are the metrics:
Balanced blend of growth ratios
Balanced blend of valuation ratios
Blend of financial ratios, margins, returns on capital
Inspired by Warren Buffett
// Benjamin Graham
// Joel Greenblatt
// Peter Lynch
// William ONeil
// Joseph Piotroski
// Martin Zweig
The metrics inspired by famous investors are an interpretation of publications. No claim is made that it models accurately their strategies.
The next table reports the scores of YHOO. You can read them as fundamental relative strength indicators in the NASDAQ 100 Universe.
Average Score: 30.4 / 100
The next three charts show the evolution of the basic scores for twelve months (in green), compared with the price (in red).
The Basic Growth score fell from 80 to 13 in one year (in fact almost in one month).
The Basic Value score fell from 80 to 39 in one year.
The Basic Quality score is slightly up in one year, but on a downtrend for five months.
All scores are relative to the NASDAQ 100 universe. The last chart shows the share price (in red) compared with the NASDAQ 100 Index (in blue):
The stock price is up by about 85% in one year.
Here are the facts:
- YHOO has outperformed the NASDAQ 100 and QQQ by about 55% last twelve months.
- The Basic Growth and Value scores have gone down sharply in the same period.
- Using ten fundamental metrics, the average relative score of YHOO in the NASDAQ 100 is far under the mean: 30.4 / 100.
There is a strong divergence between basic fundamental metrics and the price. It suggests that this stock is overvalued by the market in the NASDAQ 100 universe. YHOO has a strong momentum and may go higher with seasonal anomalies like window-dressing. It might be an opportunity for investors holding a long position to sell it before 2014. Seasonality makes a short trade quite risky in the next two months.
The metrics used here are standard ranks of Portfolio123. Formulas may be subject to intellectual property rights and cannot be published here. Click here for more info about them. Charts are courtesy of Portfolio123.