2013 was a fantastic market for bullish speculators. Bolstered by sellside cheerleading, companies with exciting stories in new industries saw their stock prices soar despite unproven business models, liberal accounting, and high valuations. While I don't know what the broader market will do, I believe that we will see some spectacular flame-outs during 2014. My picks are based on the following:
- Valuation greater than 90x TTM earnings.
- Insider selling in past six months.
- Limited history of profitability and/or free cash flow.
- Two (VJET and ANGI) of the stocks mentioned below have had issues raised regarding accounting/misleading statements to investors raised by a credible party in the past year. This is important as it presents a potential catalyst as we move into reporting season. While quarterly results are unaudited by 3rd party accounting firms (hence the unaudited designation under the header), annual results require a thorough study from auditors.
Voxeljet (VJET) had a spectacular run in 2013, rising +300% from its October IPO. At today's valuation, the company is selling for astounding 41x 2013 estimated revenue and over 300x earnings. Today's share cannot be justified by fundamentals - rather the share price has been chased upward by momentum investors hoping to flip the shares to somebody who imagines them going even higher. I've also seen speculation that 3D systems would buy Voxeljet. This is ridiculous. While 3D systems has been a very active acquirer in the 3D printing space, a closer look shows that the company has rarely paid more than 3-4x revenue for an acquisition. To any sober investor, it is clear that 3D systems will not pony up ~800 million to buy Voxeljet at 40+x earnings.
Voxeljet is possibly the most compelling short opportunity in the market today. Ultimately when the 3D party winds down, I expect that VJET will
