Tuesday’s Top Upgrades (and Downgrades): Cisco Systems, Inc. (CSCO), The Ryland Group, Inc. (RYL), iRobot Corporation (IRBT)

iRobot Corporation (NASDAQ:IRBT) shares currently cost 39 times trailing earnings, which seems quite a lot for a stock that most analysts expect to post only high-single-digit earnings growth over the next five years. Indeed, even if iRobot Corporation (NASDAQ:IRBT) hits its targeted $0.80 in per-share profit this year, the stock’s trading for close to a 30x multiple to earnings. Viewed under the most favorable light, the firm’s strong free cash flow and sizable bank account still have iRobot Corporation (NASDAQ:IRBT) trading for an enterprise value-to-free cash flow ratio of 15.8, and on 9% projected growth, that’s simply too much to pay.

Ryland rising?
If it’s any consolation, though… iRobot still isn’t nearly as expensive as Wall Street’s other dud of a price-target-hike this morning: The Ryland Group, Inc. (NYSE:RYL). UBS raised its price target on the stock to $36 today, but still can’t bring itself to recommend buying the stock. (No wonder. The Ryland Group, Inc. (NYSE:RYL) shares already cost $38.30, so even the higher price target fails to impress).

Priced at 45 times earnings and a staggering 3.5 times book value (and with “free” cash flow that’s firmly in the negative), this stock simply has no redeeming qualities I can discern. Rather than “following the market up” with a price target hike, UBS should have just stuck to its guns — or even downgraded The Ryland Group, Inc. (NYSE:RYL) further.

Instead, the analyst appears to have fallen into the same trap that’s caught so many other investors in the “reviving home market” story. It’s giving too much credit to projections of 44% profit growth, when The Ryland Group, Inc. (NYSE:RYL)’s cash flow statement clearly shows that this growth is generating no cash whatsoever for The Ryland Group, Inc. (NYSE:RYL)’s shareholders.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and iRobot .

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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