‘High-flying growth stocks still have a lot further to fall before they become undervalued,’ Mark Hulbert said.
Small-cap growth stocks have dropped far from their highs, leading some to wonder if they’re now bargains. The answer is no, says TheStreet.com columnist Mark Hulbert.
“High-flying growth stocks still have a lot further to fall before they become undervalued,” he wrote on MarketWatch.com.
He cites valuations for Verdad investment firm’s index of 500 of the most expensive stocks, the Bubble 500. It includes many small-cap growth stocks, Hulbert said.
The Bubble 500 has dropped more than 25% from its zenith, but its stocks “still trade at wild valuations,” according to Verdad. The Bubble 500’s average enterprise value-to-sales ratio stands at 10.6, more than three times the S&P 500’s 3.2 ratio.
“In theory a high EV-sales ratio can be justified if the company is hugely profitable,” Hulbert said. “But that isn’t the case for the Bubble 500 stocks, which collectively are losing money.”
So, “far from being almost over, … its [the Bubble 500’s] bear market may just be beginning.”
In general, Jefferies strategists don’t see small-cap growth stocks as appealing either, but they listed some small-cap stocks they do like.
The stocks ranked in the top quintile for momentum and moved up into that area over the past month. They also ranked in the top three quintiles for valuation.
The list includes Conn’s CONN, a home-goods retailer; Green Plains GPRE, an ethanol producer; Virtu Financial VIRT, which provides securities trading execution; and Community Health Systems CYH, which operates acute care hospitals.
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