A resource for debunking the investments myths peddled by the financial press and Wall Street hype and presenting rational,sensible investing approaches based on sound research and academic findings.
This blog is maintained by Lawrence Weinman MBA an independent Registered Investment Advisor www.lweinmanadvisor1.com
I have written before about the market phenomenon of
“shooting star “stocks. Often these stocks involve companies whose products are
highly visible and extremely trendy a product that seems to have infinite
future sales growth. Investors (for lack of
better word) both individual and institutional flock to thee stocks and
as price momentum builds and the price goes up, more buyers flock in. The
inevitable result is that the valuations of these stocks make them “priced to
perfection” a small disappointment in earnings prospects leads to the stock falling
back to earth often quite rapidly.
At that time I had mentioned Lululemon (LULU) which took a large
price earlier this week after a disappointing earnings report. It is now
trading at half the price of its all-time high
by Michael Santoli
reported the woes of once highflying women’s retailer Chico’s and cited a
number of companies which research from Sanford Bernstein sees as potential candidates
for leveraged buyouts because of the sharp declines of their stock.
These names are a virtual tour of your local mall all well-known
and seemingly popular or (once popular) names in the midst of a booming US stock
market at all-time record highs these stocks have seen large stock price
declines. The article notes
Within a laggard retail sector, a
crowded collection of long-established specialty chain stores selling clothes,
shoes and accessories have struggled acutely.
This subset of retail, populated by tired “concepts” now on the wrong side of
Aside from Chico’s, the list
includes Petsmart Inc. (PETM), Urban Outfitters Inc. (URBN),
UGG boot maker Deckers Outdoor Corp. (DECK),
Guess Inc. (GES), Buckle Inc. (BKE),
Steven Madden Ltd. (SHOO), American Eagle Outfitters Inc. (AEO)
and Fossil Group Inc. (FOSL).
Shares of these companies are down an average of 33% from their all-time highs,
The lesson for investors…just because the store seems busy
or “everybody” is buying or wants the product doesn’t mean the stock is a good
buy. Valuations may be high based on expectations of continued sales and profit
growth. But being a “concept” by definition means it will be difficult to
remain the darling of consumers forever. Better to check valuations rather than
the crowds at the mall before buying stock in a company.