Here are three stocks trading at highs, one of which investors would be wise to sell or lighten up on; the others, we can add with confidence.
Shopify Inc.(TSX: SHOP)(NYSE:SHOP) is in the early stages of its business development. Right now, the stock has been trading mostly on revenue growth, which has been super impressive. The latest quarter saw a 75% increase in revenue versus the second quarter of 2016.
Shopify is in the stage of trying to actually turn a profit from what is and has been a booming business. We can make educated guesses as to where we believe margins will settle and where Shopify will end up in its very competitive market.
Losses at the company are lessening, reporting an operating loss of $15.9 million in the second quarter, but investors are still waiting for the company to turn a profit.
And while the company has made impressive strides in its business, we as investors must be careful and refrain from buying into hype.
The stock seems to be in the euphoric optimism range. At over $150 at the time of writing, the stock trades at 23 times sales and 12 times book value.
And get this: the P/E multiple on 2018 consensus expected EPS is a whopping 254 times. The stock is pricing in all of the good news related to the company, and then some.
This is one I would sell.
But here are two other names that are also trading at 52-week highs, but that are still reasonably valued.
Linamar Corporation (TSX: LNR)
The stock trades at 8.9 times earnings, a 1.6 times price to book multiple, and has an ROE of over 20%. So, it’s a very profitable business that is very attractively valued.
Granted, the auto parts industry is a cyclical one, and we have arguably hit at or are around peak levels of production, but the company is nicely diversified and consistently displaying good financials.
Revenue has increased more than 40% in the last two years — a function of acquisitions and organic growth as the company continues to steal market share and expand internationally.
Labrador Iron Ore Royalty Corporation (TSX: LIF)
Labrador Iron Ore trades at a price-to-cash flow multiple of nine times and a price-to-book multiple of 2.1 times, with an ROE of more than 21% and a cash flow growth rate of 65% in the second quarter of 2017. Net income increased by $56 million compared to the same quarter last year.
The iron ore market is seeing strength after a long period of weakness, and while the shares have appreciated significantly, they still represent good value.
During the hard times, many improvements were made and have resulted in lower costs and greater production. The current dividend yield is 4.77%.
Special dividends have been paid out in good times, making investors way more than the posted regular dividend yield.
