How You Can Time The Market Successfully: Linkedin Corporation (LNKD), Netflix, Inc. (NFLX)

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The immediate suspects

When things turn for the worse, as I suspect will soon happen, there is usually a pretty well defined category of stocks that will get smacked in the head fast and hard, way before their peers. I am referring to the category of Internet – concept companies which trade at sky-high P/Es. If history is any guide, the stocks below will experience very sharp declines. Below is my “black list” of disastrous growth stocks:

  1. Amazon.com, Inc. (NASDAQ:AMZN): The gigantic Internet retailer is trading at an astounding P/E of 3,792x. It boasts a price/book of 15x. The company was able to increase its quarterly revenue by 22% year over year.
  2. Electronic Arts Inc. (NASDAQ:EA): the developer of game software and content is trading at a P/E of 1,573X. Its quarterly revenue growth has diminished by 13% year-over-year.
  3. Aspen Technology, Inc. (NASDAQ:AZPN): The software optimization provider has a P/E of 1,530X and a Price/Book of more than 27X. The company’s quarterly revenue growth jumped by more than 16% year-over-year.
  4. Linkedin Corporation (NYSE:LNKD): The hub for social- professional networks has a P/E of 825 and a price/book of 16. The company demonstrated an impressive 80% growth in quarterly revenue.
  5. Netflix, Inc. (NASDAQ:NFLX): The “video by mail” company is trading at a P/E multiple of 570 with a price/book of more than 12. The company exhibited quarterly revenue growth of only 8% year-over-year.

The Foolish bottom line

Based on the indicators I described above, we will probably be facing some tough times in the stock market soon. Staying away from stocks on my ‘black list’ is the preliminary step you can take in order to avoid catastrophic losses. You should try and time the market. It pays off handsomely.

The article How You Can Time The Market Successfully originally appeared on Fool.com and is written by Shmulik Karpf.

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