Expectations are now sky high for YRC Worldwide, Inc. (NASDAQ:YRCW) Worldwide to repeat with similar performance on July 29. In terms of valuation, YRC Worldwide, Inc. (NASDAQ:YRCW) Worldwide is the cheapest in the entire transportation sector, trading at just 0.05 times sales.
If the company can repeat with a strong quarter this month, it could trade considerably higher. Personally, I am keeping my fingers crossed, and want nothing more than to see this company prove all the naysayers wrong with another great showing.
However, if fundamental weakness is shown, then YRC Worldwide, Inc. (NASDAQ:YRCW) Worldwide could lose a great deal of value. This is a stock that’s still down by 99% over the last five years, and investors are still highly skeptical. To me, this equals a great deal of risk. Thus, I’d be very careful and would expect a quite volatile month.
#1 Time to Back up the Bullish Sentiment
Alright, Tesla Motors Inc (NASDAQ:TSLA) began its three month 165% gain with earnings, and now it has to live up to the high expectations that have been set.
This is an automotive company, and contrary to popular belief, the Chevy Volt and Nissan Leaf have comparable sales to Tesla Motors Inc (NASDAQ:TSLA)’s Model S. Yet, with an operating margin of negative 33%, 12 month sales under $1 billion, and a market cap of $13.5 billion, Tesla Motors Inc (NASDAQ:TSLA) has been granted an excessive valuation relative to its peers.
Consider the fact that Ford Motor Company (NYSE:F) is also growing its revenue by double digits year-over-year and has a market cap that is less than five times greater than Tesla Motors Inc (NASDAQ:TSLA), yet has revenue that is 137 times greater! These metrics don’t add up, and this is the primary reason that 32% of Tesla Motors Inc (NASDAQ:TSLA)’s float is short.
Tesla Motors Inc (NASDAQ:TSLA) CEO Elon Musk has made big claims over the last few months, guiding for sales of 200,000 units within three to four years. Now, the company has to back its claims with fundamental improvements. With it being so much more expensive than other auto stocks, I view it as the highest risk this earnings season and would not want to own it on July 22 when it reports.
Final Thoughts
With earnings season around the corner, there are going to be a lot of market leaders to reverse their trend. Conversely, a lot of market laggards will reverse to trend higher.
Theoretically, a stock is valued on expectations and fundamental data. As expectations rise, a stock rises as well. When fundamentals fall, the stock will fall until reaching a point where expectations and fundamentals align.
For these four companies, I fear that expectations exceed fundamentals, and that can prove troublesome for many investors.
The article 4 Stocks I Don’t Want to Own in July originally appeared on Fool.com and is written by Brian Nichols.
Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends Green Mountain Coffee Roasters, Netflix, and Tesla Motors. The Motley Fool owns shares of Netflix and Tesla Motors. Brian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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