Are These Stocks Overpriced?

Brittney Barrett  |

Bubbles have been in focus on Wall Street of late, from the ever-expanding technology bubble to the sky high prices on gold and silver, but these two well-publicized sectors are not the only ones at risk for potential losses. The stocks below have been on an uptrend for more than a year, with many of them trading as much as 10 times above their 52-week lows. Similar to the absurd valuations on companies like Facebook or certain commodity prices, these companies are overvalued, making them a concern despite impressive P/E ratios.

For investors who already own shares in the stocks, companies like Whole Foods and Avalon may still be attractive and will continue to trade above buying price for sometime, but for investors just getting involved, shares in these corporations may be too high and risky for the expense. That doesn't mean there is no growth potential or their business model is flawed but rather that shares may already be overpriced and if investors begin seeing growth slower than expected, that could spell losses for late investors.

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Whole Foods Markets Inc. (NASDAQ: WFMI)

Among the companies that fit this profile is Whole Foods Markets Inc. (NASDAQ: WFMI), shares are currently trading at $59.77, down slightly from high points last week. Whole Foods owns an organic chain of supermarkets that have proven to be extremely successful; however, with the extremely inflated price of many vegetables and other foods, Whole Foods will either have to make money on lower margins or take the risk of raising their food prices beyond their already comparatively very expensive rates. Whatever path they choose to take will be sure to affect sales revenue. Many Whole Foods customers already accept that they have to pay higher prices for food but there are another group that are probably already at their limit. Higher prices may mean customer loss. Alternatively, selling food at the same price despite a rise in base cost would still short revenues and could be expected to dishearten investors. Shares of Whole Foods have traded between $33.96 to $66.87 over the past year with a 50 day moving average of $61.83 and the 200 day moving average is $48.05. The most indicative factor here though is that earnings estimates are around $1.81 per share for this year, meaning the P/E value is 35 and the stocks could be significantly overvalued.

Under Armor, Inc., (NYSE: UA)

Maryland-based Under Armor, Inc., (NYSE: UA), the provider of exercise apparel has already sunk significantly in the last week or so but the trend may keep up. Shares today were down 3 percent, but remain significantly overvalued. Investors appear to be wary of this now meaning the likelihood that they will regain any significant dollar value is low. Shares have a 52-week range between $29.12 and $80 with a fifty day moving average slightly above today's share prices and the 200 day moving average of$54.02. Earnings estimates are $1.65 per share for the year with 2012 estimates at $2.02 per share. Shares are currently trading over 30 times above 2012 share estimates, which from an investment standpoint could likely spell a decline in stock price.

Travelzoo, Inc. (NASDAQ: TZOO)

Shares of Travelzoo, Inc. (NASDAQ: TZOO),  are trading at $75.56, down significantly from where they were last week. Travel Zoo has sunk with the rest of the related industry. With higher gas prices, people are traveling less, meaning they need fewer deals on hotels, plane tickets, care rentals and the rest of the gamut. Additionally, the company has significant competition in this area with a bevy of new travel coupon websites and the existing ones all still operations. Over the course of the past year, shares have traded between $11.60 to $103.80. The 50 day moving average is $61.51 with a 200 day moving average of $39.37. Shares, despite a drop are still well above moving averages and valuations. Earnings estimates for TZOO are $1.15 per share for 2011, meaning the PE ratio stands around 65.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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