On Monday I looked at a few shares that had found favour with brokers this week and been given buy ratings.
Unfortunately, not all shares have been so lucky. Three shares that have been given the unwanted sell rating are listed below. Here’s why the leading brokers think you should avoid them:
Altium Limited (ASX: ALU)
According to a note out of Ord Minnett, it has initiated coverage on this printed circuit board design software provider with a sell rating and lowly $16.54 price target. The broker struggles to justify Altium’s valuation and has suggested that the level of recurring revenues it is generating does not deserve such a premium valuation. With the market expecting earnings per share of around 40 cents in FY 2019, Altium’s shares do trade on a sky-high multiple of approximately 55x forward earnings. While I remain confident that the quality of its offering and its exposure to the rapidly growing Internet of Things market will allow it to generate sufficient growth to justify the premium, it is worth remembering that its shares would almost certainly come under significant selling pressure if it failed to do so.
ASX Ltd (ASX: ASX)
A note out of Goldman Sachs reveals that it has retained its sell rating on the Australian stock exchange operator with a price target of $47.70. According to the note, while the broker thinks the company has many favourable features such as a near-monopoly in many products, low capital intensity, and no debt, it is trading on a much higher multiple than its global peers. I would agree with Goldman on this one and believe there are better options out there for investors until it trades on a fairer valuation.
Woolworths Group Ltd (ASX: WOW)
Analysts at Morgan Stanley have retained their underweight rating and $23.00 price target on the retail conglomerate’s shares despite its belief that the new Caltex Limited (ASX: CTX) deal will give its petrol business a significant earnings boost. The broker also suspects that a new fuel-related rewards program could lift its food business. While I wouldn’t be a seller of its shares if I owned them, I wouldn’t be a buyer unless they came down 10% or so from here.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and ASX Limited. 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.