All posts from in,

5 Speculative and Overvalued Companies to Avoid – August 2015

Overvalued Companies

The market is filled with companies with a lot of hype which are touted as great investments, but Benjamin Graham taught that intelligent investors must look past the hype and avoid speculating about a company's future. By using the ModernGraham Valuation Model, I've selected five of the most overvalued companies reviewed by ModernGraham.

Each company has been determined to not be suitable for either the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

eBay Inc. (EBAY)

eBay Inc (NASDAQ:EBAY) Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, the lack of dividends, and high PEmg and PB ratios. The Enterprising Investor is concerned by the lack of dividends and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2011 to an estimated $1.33 for 2015. This level of demonstrated earnings growth does not support the market's implied estimate of 6.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value below the price. (See the full valuation)

Autodesk Inc. (ADSK)

Autodesk Inc. is not suitable for the more conservative Defensive Investor or the...