What do a router component supplier, a super fund administrator, and an online travel booking website have in common?
They've all enjoyed very strong price performance in recent times, hitting new 52-week highs in the past few trading days. Whether they offer value at current prices is another question however, and investors are probably better off avoiding at least a couple of the following:
Netcomm Wireless Ltd (ASX: NTC) – last traded at $2.10, up 320% for the year
Triple your money in 12 months? Good work if you can get it. Netcomm shares have soared into outer space on the back of several promising reports and the hint of more to come in the future with the growth of machine-to-machine (M2M) communications.
While the stock hit a high of $2.25 yesterday, Netcomm shares currently trade on a Price to Earnings (P/E) ratio of about 88 – or, to put it another way, the company is worth $217 million yet only made profits of $2.5 million in the past 12 months.
While its growth appears likely to continue, the company has a considerable amount of success factored into its share price already and investors are overlooking many of the risks, such as the potential for competition. I would not buy Netcomm Wireless today.
Link Administration Holdings Ltd (ASX: LNK) – last traded at $7.46, up 5% for the year
Ordinarily, Link wouldn't rate a mention in this article given that it is a recent listing and has only risen 5% since its debut on the S&P/ASX 200 (INDEXASX: XJO). Link is though up 16% from its Initial Public Offering, or IPO price. However, the company was variously described as 'fully valued' and 'priced to perfection' before it launched, and with the price up some 16% since then investors should be wary.
The rise has been good news for retail shareholders who reportedly hold approximately a third of the shares allocated in the IPO, but Link now trades on a Price to Earnings (P/E) ratio of just under 30, which is much more expensive than the broader ASX.
I would consider leaving Link Administration Holdings on the shelf in favour of other opportunities.
Webjet Limited (ASX: WEB) – last traded at $5.40, up 71% for the year
Online site Webjet has done well for itself despite occupying an uncomfortable position in the market. Wedged in between the bricks-and-mortar of businesses like Flight Centre Travel Group Ltd (ASX: FLT) and the online might of travel giants like Expedia, it nevertheless has managed to grow earnings and profits at a respectable rate – even taking market share away from Flight Centre.
With an expansion into Europe and North America and increased targeting of the business travel sector, Webjet felt confident enough to forecast a 20% increase in its Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) for financial year 2016.
Webjet also recently announced it was adjusting the employment terms of Managing Director, John Guscic, in order to retain him out to 2018. I have a question mark in my mind about the medium-term security of Webjet's earnings given the low barriers to entry and increasing competition in this sector, but certainly the stock appears to be on a firm footing and appears to be reasonable value today.
