What: This week three undeniably great companies saw their share prices hit new 52-week highs. Those stocks were Commonwealth Bank of Australia (ASX: CBA), Origin Energy Limited (ASX: ORG) and Slater & Gordon Limited (ASX: SGH).
So what: In the case of CBA and Slater & Gordon both stocks are not only trading at 52-week highs, but they are also at all-time record highs. In many ways it's not surprising that these high quality businesses are reaching new highs given that they are reporting a combination of record profits and/or strong outlooks for growth. The fact that the stock market is buoyant with the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) trading at a six-year high is of course helpful too.
Now what: To be clear, I'm not questioning the underlying business performance of these three firms, however investors who are purchasing stock at these levels must presumably be of the opinion that they deserve to trade at quite lofty valuations.
While it's quite likely that in the long-term these three stocks will deliver higher per share earnings to shareholders and in the future rightly trade at higher prices in line with their higher level of earnings, it remains to be seen whether current levels will be deemed reasonable or lofty in hindsight. Adding overpriced stocks to your portfolio can lead to underperformance, so investors should always consider the value they are receiving compared to the price they are paying.
