Overvalued -- a dreaded word in the world of finance. A stock could stay overvalued for as long as more suckers are willing to buy based on a perception of future business potential. But once that perception reverses (usually caused by an earnings warning or major macro development), then the fact that the stock was overvalued before a material development becomes common knowledge. Stock analysts will trip over themselves to issue downgrades and price target revisions headlined with scary titles.
I have a funny feeling that we are headed into a period (that always seems to happen during the slow summer months) of frequent chatter that the market is overvalued and destined for a plunge of some sort. Let me be clear: I have no clue if the market at its present levels of valuation is overvalued; no stock god taps me on the shoulder and whispers sage advice. I can only draw conclusions from the signals the market's dealing daily, as well as respect history lessons (and personal mistakes).
So, is the stock market overvalued? Draw your own conclusions.
UPS vs. the Stock Market
UPS (UPS) shares have surged in the last three months. Is the global economy that strong to warrant UPS trading at 11.4x trailing 12-month EV/EBITDA? Has UPS found the cure for making home-delivery service 150x more efficient?
Google vs. the Stock Market
Google (GOOGL) shares have been underperforming the broader market, not supporting the "market is overvalued" thesis. In an overvalued market, I fancy Google would be well-owned due to hype. Then again, investors could have dumped Google to rotate into defensives as they saw a period of overvaluation ahead. Confused yet?
JB Hunt vs. the Stock Market
Wow, the U.S. economy must really be roaring in light of the increase in JB Hunt (JBHT) shares.
Lululemon Athletica (LULU): The only thing to care about in the company's earnings release is if same-store sales stabilized on a sequential basis (want to see a slowing rate of degradation in the percent change in sales). The company has to start turning the corner with its sales trend to regain its lost overly bullish following on the Street.
Nike (NKE): I don't like how the stock acts as we are all being forced to watch soccer in the office. Be on the lookout for a downgrade.
Coach (COH): Dreadful. Dead money as far as I am concerned. My experience is that brands of this nature may never return to glory amid trumpeted initiatives from management.