10 Overvalued Stocks Of The S&P 500 – July 2018

There are a number of great companies in the market today, but there are also a number of companies that are vastly overvalued by the market. 

All of these companies are not suitable for the Defensive Investor and/or the Enterprising Investor. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

WestRock Co (WRK)

WestRock Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.14 in 2014 to an estimated $2.28 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 10.33% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into WestRock Co revealed the company was trading above its Graham Number of $58.32. The company pays a dividend of $1.6 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 29.15, which was above the industry average of 24.07. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-35.95.(See the full valuation)

(Click on image to enlarge)

Tripadvisor Inc (TRIP)

Tripadvisor Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.41 in 2014 to an estimated $0.75 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 25.06% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Tripadvisor Inc revealed the company was trading above its Graham Number of $15. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 58.63, which was above the industry average of 33.52. Finally, the company was trading above its Net Current Asset Value (NCAV) of $0.61.(See the full valuation)

(Click on image to enlarge)

Coty Inc (COTY)

Coty Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

1 2 3 4
View single page >> |

Disclaimer: The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours. This ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Carol Wydra 2 weeks ago Contributor's comment

they're about to get undervalued shortly..stay tuned!