Warnings from some experts about overvalued share prices aren't enough to keep our market down!
The S&P/ASX 200 Index (Index:^AXJO) reversed its morning losses and is trading 0.4% higher as we head into the close.
Our market may have gotten a tat too excited about the COVID-19 economic recovery, but I don't think that in itself will send the ASX 200 into a new bear market – at least not in the shorter-term.
But the air of optimism hasn't stopped brokers from downgrading their recommendations on a handful of ASX stocks.
Not 'Appening anymore
One stock that might be looking maxed out is tech darling Appen Ltd (ASX: APX), according to Credit Suisse.
The broker lowered its rating on the stock to "neutral" from "outperform" despite the artificial intelligence product developer's upbeat trading update.
Appen highlighted a robust demand outlook, increasing use of its products across various industries and growing efficiencies in its business.
"Our rating downgrade is primarily a function of share price rather than change in thesis," said Credit Suisse.
"In March APX was trading 26x consensus 12-month forward P/E vs 42x currently, and its share price is now near an all-time high.
At these levels in our view an upgrade is required to support further share price appreciation, although in the current environment, it may be more challenging to achieve."
The broker's price target on Appen is $30 a share.
Playtime over
Another stock that's issued good news but is hit by a downgrade is Baby Bunting Group Ltd (ASX: BBN).
Citigroup cut its recommendation on the baby products retailer to "hold" from "buy" after management reported strong like-for-like (LFL) sales growth.
This may be due to shoppers stockpiling essentials, like diapers, and pre-orders from consumers worried about delays in getting products.
But despite the good results, Citigroup thinks Baby Bunting's margins will come under pressure from a sales shift towards skinnier margin consumable products and higher freight costs from online orders.
"We expect outperformance relative to the broader retail sector to slow as more discretionary segments outperform as the Australian lock down is eased, and consumer stockpiling unwinds," said the broker.
"We see the FY21e PE of 17x, a 9% premium to peers, as fairly reflecting the rewards and risks."
Citi's price target on the stock is $3.35 a share.
Losing its shine
A bullish outlook for the gold price isn't enough to keep Evolution Mining Ltd (ASX: EVN) on Morgan Stanley's buy list.
The broker chopped its rating on the gold miner to "equal weight" (equivalent to "hold") from "overweight".
While the outlook for the precious metal is positive due to the uncertain economic environment from COVID-19 and negative bond yields, Evolution is starting to look fully priced compared to its peers.
"In the last year, our gold coverage's average forward 12m EV/EBITDA has fallen ~13% to 6.3x, and are trading an average of 7% below three-year averages," said Morgan Stanley.
"If we assume our coverage returns to respective peak multiples of 7-11x, we find 30% upside for all but EVN."
The broker's price target on Evolution Mining is $4.70 a share.
