Zillow Inc (Z), Microsoft Corporation (MSFT): The Most Dangerous Small-Cap Stock On The Market

Zillow Inc (NASDAQ:Z) will also be battling a highly fragmented and regional market, intense competition and an industry with very few barriers to entrance. This sounds like the antithesis of the Warren Buffett investment philosophy , which is to invest in market leaders in established industries with high barriers to entrance that limit new competition.

Risks to Consider: Zillow continues to see impressive growth in online traffic and premium subscription rates. Although earnings still remain negative, the company is expected to become profitable in 2015. Zillow is also one of the hottest momentum stocks on the Street, which means it can trade with high valuations for extended periods of time.

Action to Take –> The market has been flashing warnings signals, with the Fed taper and Hindenburg Omen fueling fear of a sell-off on the Street. That would weigh on all segments of the market, but overvalued small caps will be hit the hardest. And Zillow Inc (NASDAQ:Z) is one of the most overvalued small caps in the market. Although Zillow continues to see impressive sales growth, the company is years away from turning a profit. And with shares trading near a fresh all-time high, there’s still time to take profit and avoid a stock that is particularly vulnerable to a broad sell-off.

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– Michael Vodicka

The article The Most Dangerous Small-Cap Stock On The Market originally appeared on StreetAuthority and is written by Michael Vodicka.

Michael Vodicka does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.