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dasdasdasdadas
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As we start the new month of May, I continue to believe the market has gone a considerable way past fair value in its recent run up since QE2 was announced. It is highly vulnerable to a significant sell off. The high beta stocks especially have run the furthest from their intrinsic value in my opinion. Over time, a stock’s value should increase somewhat in line with the operating cash flow it produces, and it is a good place to start to look for red flags if that is not the case.
Here are six equities whose stock prices have run way ahead of the operating cash flow they have generated in the last two years and could crack in any market pullback.
Intrepid Potash (NYSE:IPI) – Intrepid Potash engages in the production and marketing of muriate of potash or potassium chloride, and langbeinite under the Trio brand name primarily in the United States. From year-end 2008, until year-end 2010, IPI’s operating cash flow decreased 22% as its stock price went up 79% over that time period. The stock has fallen a little over 8% so far in 2011. IPI is trading at over 22 times this year’s earnings and a little over 18 times next year’s consensus. Insiders have sold over 2mm shares in last six months.
Macerich Company (NYSE:MAC) - The Macerich Company operates as a real estate investment trust (REIT) in the United States. The company, through its majority-owned partnership, The Macerich Partnership, L.P., engages in the acquisition, ownership, development, redevelopment, management, and leasing of regional and community shopping centers. From year-end 2008, until year-end 2010, MAC’s operating cash flow decreased 20% as its stock price went up 162% over that time period. The stock has increased another 10% so far in 2011. It sells at over 18 times this year’s projected earnings and at approximately 17 times 2012’s projected earnings. From a P/S and P/CF valuation basis, it is selling at the very top of a five year range. Insiders have sold 28% of their shares over the previous six months.
Netflix (NASDAQ:NFLX) - Netflix, Inc. provides online movie rental subscription services in the United States. The company offers its subscribers access to a library of movie, television, and other filmed entertainment titles on digital versatile disc (DVD). It is probably the most known company of those profiled here. From year-end 2008, until year-end 2010, Netflix’s operating cash flow actually decreased 2.5% as its stock price went up an amazing 488% over that time period. NFLX has increased another 32% so far in 2011. It sells at over 52 times this year’s consensus earnings and at over 35 times 2012’s projected earnings. From a P/S, P/E and P/CF valuation basis, it is selling at the very top of a five year range. Insiders have sold 18% of their shares over the previous six months.
Trimble Navigation (NASDAQ:TRMB) - Trimble Navigation Limited provides advanced positioning product solutions to commercial and government users worldwide. From year-end 2008, until year-end 2010, TRMB’s operating cash flow decreased 29% as its stock price went up 169% over that time period. It has increased another 17% so far in 2011. It sells at over 23 times this year’s projected earnings and more than 20 times 2012’s consensus. Trimble sells at almost 5 times trailing revenues, and more concerning insiders have sold 78% of their shares over the last six months. It is also selling at the top quartile of its five year valuation range based on P/E, P/S, and P/CF.
Under Armour (NYSE:UA) - Under Armour, Inc. develops, markets, and distributes performance apparel, footwear, and accessories for men, women and youth primarily in the United States, Canada and internationally. From year-end 2008, until year-end 2010, UA’s operating cash flow decreased 28% yet its stock price went up 130% over that time period. It has also added an additional 25% this year despite a 10% plus selloff recently on inventory concerns. Under Armor sells at over 42 times this year’s projected earnings and 3.3 times revenues. It is very vulnerable to rising gas prices, and lost 55% of its value during the last gas spike of late 2007/1st half of 2008. Insiders have sold over 500,000 shares in last six months.
Verisign (NASDAQ:VRSN) - Verisign, Inc. provides Internet infrastructure services to various networks worldwide. It operates in two segments, Naming Services and Other Services. From year-end 2008, until year-end 2010, Verisign’s operating cash flow decreased 55% yet its stock price went up 71% over that time period. It has added approximately 10% so far in 2011. VRSN sells at 25 times this year’s projected earnings and around 19 times next year’s consensus. It is selling at over 9 times revenues, which is at the highest point in the five year range for this stock based on that valuation metric. Insiders have sold over 35% of their holdings during the previous six months and the stock looks poised for a pullback.
Source: 6 Companies Whose Operating Cash Flow Trails Stock Price Appreciation