3 Stocks Near 52-Week Highs Worth Selling: Lumber Liquidators Holdings Inc (LL) and More

Let’s not get the party started
To continue with the theme of picking on restaurants, let’s move to the more casual-dining establishment Fiesta Restaurant Group Inc (NASDAQ:FRGI). Like the previous two companies mentioned here, the results have been decent. Fiesta, the owner of Pollo Tropical and Taco Cabana restaurants, noted a 5.8% increase in revenue in its latest quarter and a 50% increase in net income to $3.6 million from $2.4 million. Pollo Tropical led the way with a 5.9% increase in customer traffic and a 1.1% improvement in average check price.

But, like the previous companies on this list, there’s cause for concern that its share price may be way ahead of realistic expectations. For one, Fiesta forecast that cost inflation would eat into margins by 50 to 60 basis points. Considering the cost pressures that Chipotle Mexican Grill has alluded to recently, I think these estimates may wind up being a bit light. Second, I think the company’s estimates for traffic growth may be a bit optimistic considering the payroll tax increase. Finally, I’d expect its costs to rise as it makes plans to add 14 to 17 new restaurants this year. Tighter margins and higher costs will make Fiesta’s forward P/E of 26 seem awfully scary.

Foolish roundup
This week I’m choosing to focus not on extremely poor companies, but merely solid business models that have been drastically overpriced in recent months given the amount of challenges they’ll face over the next one to three years.

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 McDonald’s and Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Lumber Liquidators, McDonald’s, and Chipotle Mexican Grill.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.