The three stocks in today's article look to be a classic example of investor expectations pushing prices higher…but not always with justification.
Two of the following companies look likely to post incredible growth to justify their rising prices while the third contender looks to have shot beyond fair value in a case of misplaced enthusiasm. Here's what you need to know about the recent rises at:
Catapult Group International Ltd (ASX: CAT) – last traded at $1.24, up 124% for the year
Catapult Group is a recent Initial Public Offering (IPO) that offers hardware and software to provide accurate biometric feedback to athletes and sports teams. With a huge list of A-grade clients across a wide variety of nations and sports, Catapult earns most of its revenues from overseas and appears to have plenty of growth potential.
There has been no announcement to trigger the recent upwards trend in the company's shares, but I suspect that investors may be awakening to this company's potential. I'm not yet a buyer of the company as I habitually steer clear of recent offerings until I can see the first full year's report, but Catapult Group is one for the watch list and appears to be a great speculative opportunity for the risk-tolerant investor.
Echo Entertainment Group Ltd (ASX: EGP) – last traded at $4.57, up 44% for the year
This casino operator rides in on a steed of positive investor sentiment, after half-year revenue leapt 25% and net profit jumped 110%. With the company's full-year report coming out soon, it looks as though investors may be expecting more of the same.
However, I feel that revenue and profit growth are likely to moderate over the medium term, especially as capital expenditure requirements (for refurbishments, etc) increase and additional competition enters Echo's previously captive markets.
So while the company doesn't look outrageously expensive, I still wouldn't consider entering at this price level and believe Echo Entertainment is a 'Hold'.
Bellamy's Australia Ltd (ASX: BAL) – last traded at $4.66, up 257% for the year
Bellamy's has set an incredible pace so far this year, and the company actually leapt to $5.20 in trade yesterday before crashing back to more 'modest' prices of $4.66. It looks like buyers may have become a little excited and the rapid retreat below $5 could indicate that the market thinks a price of $5+ is too expensive.
The company does look to be experiencing incredible growth, but I am cautious about its prospects while shares remain in such high demand. With a limited float (only 95 million shares) the company is more vulnerable to dramatic rises and falls, and I think it is priced to perfection for the time being, despite its long-term potential.
