Some technology stocks have been hit hard recently, and that has created some potential buying opportunities in names like CSCO, and HPQ. On the other hand, some tech stocks have rallied and now trade well above their moving averages with very high PE ratios. When tech stocks have disappointing news or earnings from high valuation levels, the results can be devastating for shareholders. It seems that many investors have forgotten what can happen when stocks trade for 40, 60, even almost 100 times earnings. Remember when investors were willing to pay about 50 times earnings for Cisco shares? The tech stocks below are trading at valuations that appear to be priced for perfection.
These names have very high PE ratios, are trading above their moving averages and appear overbought. Here are the five companies:
Ariba Inc. (NASDAQ:ARBA) shares are trading at $32. These shares have a relative strength index of about 67 which indicates the shares are at overbought levels. ARBA is a leading technology company that provides business solution products. The 50 day moving average is $27.08 and the 200 day moving average is $20.22. This shows that the shares are priced well above the moving averages. Earnings estimates for ARBA are just 80 cents per share in 2011, which puts the PE ratio around 40 on these shares.
Salesforce.com, Inc. (NYSE:CRM) shares are trading over $130. The 50 day moving average is about $135.82 and the 200 day moving average is about $115.95. Salesforce provides CRM business solutions. Earnings estimates for CRM are about $1.38 per share in 2011, so the PE ratio is almost 100 on these shares!!!! These shares have just dipped below their 50 dma, so the next stop might be around the 200 dma at $115.95.
Rackspace Hosting, Inc. (NYSE:RAX) shares are trading at $37.37. Rackspace provides hosting and cloud solutions. The 50 day moving average is about $34.48 and the 200 day moving average is about $25.29. Earnings estimates for RAX are about 55 cents per share in 2011. This puts the PE ratio at about 68!
Autodesk, Inc. (NASDAQ:ADSK) shares are trading at $40.11. ADSK is a leading provider of design software. The 50 day moving average is $41.26 and the 200 day moving average is $33.73. Earnings estimates for ADSK are about $1.65 per share in 2011. This puts the PE ratio at about 25. These shares have just dipped below the 50 day moving average, which indicates a correction to lower levels has probably already started. You can see a recent article I wrote suggesting that ADSK should be sold back when it was over $44 per share, and that I preferred Cisco (NASDAQ:CSCO) shares (since they already corrected) here.
ARM Holdings, PLC. (NASDAQ:ARMH) shares are trading at $28.79. ARM Holdings designs and sells microprocessors. The shares currently trade well above the 50 day moving average of $26.23 and the 200 day moving average of $18.60. Earnings estimates for ARMH are about 46 cents per share for 2011 and about 75 cents for 2012. This puts the PE ratio around 46!
I believe the extremely generous stock prices in these names represents a solid opportunity to cash in and rotate into less expensive stocks, as these could drop sharply from very lofty levels. I would also note that some of these names are seeing repeated insider selling.
The data is sourced from Yahoo Finance. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclosure: I am long CSCO.