Understanding that, I have to wonder what investors see in a company that’s currently being valued at 43 times forward earnings, 13 times sales, 10 times book, and a staggering 55 times cash flow! Were I to run a screen of the markets’ most overvalued stocks using my TMFULOI metric, Proto Labs Inc (NYSE:PRLB) would be one of just a handful of companies to pop up on the list.
Considering that manufacturing growth is nowhere near strong enough to command this type of valuation out of Proto Labs, and that its technology is slowly being replaced by 3-D manufacturers, I see no reason to pay such a hefty price for this company.
Driving into unchartered territory
As I’ve repeatedly stated before, not every company featured in this weekly series is a bad company. Sometimes, the emotions of investors just get the better of them, and the valuation of a company doesn’t reflect the underlying growth. This is the plight of fleet management specialist FleetMatics Group PLC (NYSE:FLTX).
In FleetMatics Group PLC (NYSE:FLTX) second-quarter results, the company delivered a 39% increase in revenue, to $42.5 million, with non-GAAP EPS rising by a whopping 360%. There’s no doubt in my mind that Fleetmatics’ software-as-a-service platform, which allows small-to-medium sized businesses to locate their vehicles and analyze fuel consumption, is a tool that will only grow in popularity over time. What isn’t understandable is the current valuation placed on FleetMatics Group PLC (NYSE:FLTX)’ stock.
At a whopping 48 times forward earnings, 13 times book value, and 12 times sales, FleetMatics Group PLC (NYSE:FLTX) is pushing all boundaries of value investing. If the company was able to keep up its growth rate well into 2015, I might be able to support this valuation, but with top-line growth expected to drop off to just 24% next year, from 39% in the past quarter, I can’t suggest Fleetmatics as a good deal at a PEG of two.
Foolish roundup
Although valuation is always the prime reason a company makes its way into this series, the three stocks mentioned this week are here almost solely based on what appears to be overzealous investors. The business model for all three looks profitable over the long run; however, the near-term results for all three had better be flawless if they have any hope of maintaining their current valuations.
I’m so confident in my three calls, that I plan to make a CAPScall of underperform on each one. The question is: Would you do the same?
The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends Proto Labs. It also recommends Halliburton and Moody’s.
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