Baron Rothschild once said, “I made a fortune by selling too soon.” Investors in stocks today might consider this advice when looking at shares of Workday Inc (NYSE:WDAY) and CONN‘S, Inc. (NASDAQ:CONN). Why would anyone group Cramer’s favorite Jersey retail chain and a cloud computing stock in the same article you may ask? Well, these stocks both have extreme optimism and exuberance priced into their shares and are extremely speculative at current valuations. Investors in these two stocks may want to consider simply selling soon.
Workday Inc (NYSE:WDAY), having benefitted from the current Cloud Computing craze, picked the exact right time to go public. Not since the first technology bubble of the late 1990’s have investors blindly placed such unwavering faith in an idea like Cloud Computing in terms of raw multiples. So what is it that is so appealing about Cloud Computing for investors? For one thing, Software as a Service is expected to grow at a 19.1% compound annual growth rate over the next four years but I actually expect higher growth than that in this space.
Cloud Computing is a big deal, and is allowing me to type this article without a word processor. It’s as simple as that — this technology allows everything people do with software to be done at a lower price point via cloud. In addition to making software seemingly obsolete long term, the cloud can also store all of the medical records of a hospital and all of the data at the Treasury Department, for example, to be remotely stored without the need for physical documents.
Basically, the cloud is huge for data storage and record keeping as well as software. So it’s easy to see why stock market investors would love this industry and push multiples to the sky. Heck, in 1999 anything with a dot com at the end of it went to the moon despite the business realities or the individual business models of the companies these slips of paper represented. The rise of online stock trading and low commissions certainly is also in part to blame for such speculative and short term behavior. In addition, the psychology of market participants, motivated by fear and greed, helps push bubbles to the moon and then back to the linoleum floor.
Certainly, the gyrations of the banking system and the dissolution of Glass Steagall are a huge culprit in the bubble making and popping game that ends up costing investors so much money over time. The biggest reason in my view for the recent parabolic rise in salesforce.com, inc. (NYSE:CRM), Workday Inc (NYSE:WDAY), and CONN’S, Inc. (NASDAQ:CONN) is likely groupthink, easy money policy, the herd mentality of prop traders, and the fact that traders will chase high beta momentum stocks on margin during stock market rallies.