It’s never wise to buy on the recommendation of one analyst alone, but you can use the reasons for the call to help make a more informed investment decision. With that said, there were some controversial calls on Monday, but are these analysts right, or does the call create a trap for retail investors?
The upgrades continue to pour in
Facebook Inc (NASDAQ:FB) is no stranger to high-profile upgrades following its perception-changing Q2 earnings beat. In the quarter, revenue accelerated from a growth rate of under 40% year-over-year to over 50%. Immediately, due to my feelings that Q2 changed the outlook for the company, I gave it a $50 price target, and was instantly criticized on Twitter.
However, on Monday, the stock hit new 52-week highs after Gene Munster from Piper raised his target from $38 to $46 citing new ad products. Specifically, Munster likes the prospects of new video ads — a service that could more than double Facebook’s current revenue.
Personally, I love this call. At $46, Facebook Inc (NASDAQ:FB) would trade at 18.3 times sales, which would still be significantly less than LinkedIn’s 21 times sales valuation. In my opinion, the long-term outlook for Facebook Inc (NASDAQ:FB) is brightening, with over one million advertisers using the service, and I think Facebook Inc (NASDAQ:FB) is a “Buy.”
A side of caution
Priceline.com Inc (NASDAQ:PCLN) ticked higher by 2% on Monday with its price target being hiked 25% to $1,040 by JPMorgan. The firm simply notes expectations for a solid Q2 and more market share gains stemming from its Kayak acquisition.
Priceline.com Inc (NASDAQ:PCLN) could very well have a good Q2 and could gain more market share from its competitors. However, as I explain in this article, Priceline is becoming a bit of a valuation concern to me. This is a company that operates with perfection on every level, with an industry best 42% return on equity and 35% operating margin. Priceline.com Inc (NASDAQ:PCLN)’s closest competitor, Expedia, is not even close in terms of efficient investments and margins.
Nonetheless, Priceline.com Inc (NASDAQ:PCLN)’s greatest strengths could become a weakness when trading at 8.25 times sales. Priceline already controls 20% of the entire travel industry, and I am concerned that the company can not grow aggressively without sacrificing margins and its return on investments. Therefore, Priceline.com Inc (NASDAQ:PCLN) might reach $1,040, but I’d definitely view this call on the side of caution.
Too late of a call?
Canadian Solar Inc. (NASDAQ:CSIQ) has produced a one-year 500% gain, yet, Roth is calling for more upside by initiating shares with a “Buy” rating. The firm’s call comes behind the company’s deal to sell five utility-scale solar power plants for $277 million to Concord Green Energy.
The deal strengthens the company’s balance sheet and will allow it to lower its debt-to-assets ratio of 50%. Canadian Solar Inc. (NASDAQ:CSIQ), like other solar companies, had a rough year in 2012 with falling revenue and margins. However, 2013 has produced stability and a boost in margins, which has sparked gains for the stock.
With a market cap of $670 million, Canadian Solar Inc. (NASDAQ:CSIQ) is still cheap at just 0.5 times sales. The company still has a large portfolio of assets that it can divest to become more efficient. As of now, investors appear to like what they see, and I agree that this sell was a good deal for Canadian Solar Inc. (NASDAQ:CSIQ). However with gains of 500% this year, and in a very fragile solar space, I think a “Buy” rating might be a bit too bullish. At this point, it looks as though much of the company’s upside is priced into the stock.