Ceridian HCM Holding Inc. (TSX:CDAY)(NYSE:CDAY) was a great buy one year ago. In the past 52 weeks, the stock has soared over 80% to $102.15 from around $55. Similar to many stocks trading today, Ceridian could surprise value-investors and continue outpacing the S&P/TSX Composite Index in 2020 or give the bulls some serious buyer’s remorse.
Understand a stock’s history before you buy
Ceridian HCM Holding Inc. is an international enterprise software company based in the United States. The firm is best known for its Dayforce and Powerpay software, which are cloud-based human resource platforms to manage payroll and employee benefits.
CDAY began trading on the Toronto Stock Exchange on Thursday, April 26, 2018. Like most other major technology stocks, Ceridian was a gamble at $56 one year ago. Trading at $102.15 at writing, today it would add even more substantial risk to your portfolio.
The trailing price-to-earnings (P/E) ratio is 197.48, which indicates that the stock price includes (speculative) future earnings without guarantees.
Don’t buy yet, but watch the earnings activity closely
Quarterly earnings are tomorrow, February 5, 2020. There’s sure to be some pre- and post-earnings volatility to excite every trader regardless of risk preferences.
I encourage you to add Ceridian stock to your watch list and see what happens to the price this week. Even if Ceridian meets expectations in last quarter’s report, the stock may still fall hard after today’s pre-earnings bounce.
Alternatively, the stock could continue to rise, but it’s up to you whether you want to risk $102.15 per share on an uncertain technology stock.
The trick to making money in the stock market is to find solid long-term stocks to buy. Human resource software could quickly become outdated within the next 10 to 20 years. Personally, I don’t dare buy into this stock.
The stock is over 150% the initial sale price when it first began trading on the exchange. Whether this price performance is the result of a bubble or rational perceptions of future profitability is something we’ll find out in the next few years.
Avoid risky impulse stock buys in February
While it may be tempting to let the fear of missing out (FOMO) get the best of you, trading on value will never become outdated. Try not to buy into the excitement of stock on the run because the chances of the stock experiencing a downward correction in the next year — or two if current shareholders are lucky — are better than the stock reaching epic proportions.
This stock is a hold for portfolios that don’t need rebalancing. If you absolutely need to liquidate, the stock is a sell. Otherwise, if you don’t already own CDAY, wait until the price comes down for you to buy the stock.
There’s no point in risking your hard-earned savings on this stock when there are so many other less risky stocks to buy with similar expected returns.
When in doubt, don’t trade. It’s better to miss out on capital gains than to cry over non-remunerable losses later. Instead, take a look at other stocks hitting 52-week highs like Canadian Pacific Railway.Â
Canadian Pacific Railway boasts extreme market power over railway transportation in Canada and offers alpha-level returns for every Tax-Free Savings Account or Registered Retirement Savings Plan in Canada.
