Are the ASX’s hottest new companies primed for a correction this quarter?

There are a number of new entrants to the stock market that have surged several hundred percent in the March quarter. The next three months might not be as kind to them.

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One of the hottest ASX debutantes crashed this morning after handing in its full year earnings report card.

Human resource software provider 1-Page Ltd (ASX: 1PG) tumbled 6.4% to $1.965 in morning trade when management revealed a deepening net loss of $10.4 million for the 13 months to end January 2015 compared with a loss of $1.5 million for calendar 2013.

But this isn’t the reason for today’s sell-off. In fact, the results are meaningless as they largely reflect the performance of a resource company.

The current 1-Page entity came into being through a reverse takeover of InterMet Resources Limited in October last year and the stock has surged six-fold since.

This certainly puts today’s decline into perspective, but I suspect we will see further profit taking in the coming quarter as I am anticipating a market pullback after the S&P/ASX 200 Index (INDEX:^AXJO) (ASX: XJO) enjoyed its best gain in nearly six years with a March quarterly gain of 8.9%.

This makes new rising stars on the ASX particularly vulnerable to a reversal in investor sentiment.

Other new entrants that have enjoyed a multi-fold increase in value over the past three months include digital video company Big Un Ltd (ASX: BIG), which is up 3,000+%, and technology incubator Yonder & Beyond Group Ltd (ASX: YNB) with its enviable 1,400% surge.

What makes such stocks more prone to a sell-off when risk appetite wanes is because it is often not easy to ascertain when they will deliver a profit (or if ever). Fortunately, the experts at the Motley Fool have identified a better risk-reward growth stock.

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Motley Fool contributor Brendon Lau doesn't owns shares mentioned in this article. Follow me on Twitter - We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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