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3 Momentum Stocks Poised for a Fall

Green Mountain shows the danger of chasing momentum stocks. Here are 3 others that are vulnerable

   

Green Mountain 3 Momentum Stocks Poised for a FallToday another momentum stock bit the dust: Green Mountain Coffee Roasters (NASDAQ:GMCR).

The stock is off 16.3% because Starbucks (NASDAQ:SBUX) plans to launch its own single-serve brewer, called the Verismo.

In today’s hyper-competitive world, it’s not easy to maintain a lead for long. Green Mountain is getting a taste of this, as are its investors.

What are some other hot momentum stocks that could be vulnerable?  Let’s take a look.

LinkedIn

LinkedIn (NYSE:LNKD) operates the largest social network for business professionals, with more than 150 million registered users. In fact, it has three revenue streams: Hiring Solutions, Marketing and Premium Memberships.

And yes, growth has also been staggering. In the latest quarter, revenues soared 105%, to $167.7 million.

But can LinkedIn keep up this growth? It definitely will not be easy. Keep in mind that LinkedIn is feeling heat from rivals. One example is BranchOut, which has built a professional social network on Facebook. (Here’s my interview with the CEO.)

LinkedIn may also feel a squeeze from the mobile business. True, it’s growing quickly, but mobile may be tough to monetize. Just look at Pandora (NYSE:P). This week the company announced disappointing earnings because the rates on mobile advertising are still fairly low.  As a result, the stock price lost nearly a quarter of its value.

Something else: LinkedIn’s valuation is at nosebleed levels. The stock is trading at about 19 times revenues and 157 times EBITDA.

Chipotle

Chipotle Mexican Grill (NYSE:CMG) has pounced on the fast/casual restaurant trend. It helps that the company has a high-quality menu.

But consumers can be fickle. At some point, might there be some fatigue for Chipotle fare?

If anything, the recent uptick in the U.S. economy could prove to be a problem. Might people want to start dining at higher-end places?

Chipotle has some worthy competitors, such as El Pollo, Qdoba (NASDAQ:JACK) and Baja Fresh. They are trying to find ways — such as better menu items and lower prices — to steal  customers.

The valuation? Chipotle is not cheap — the stock is at about 59 times earnings. This is a premium to other hot-growth restaurant operators such as Panera (NASDAQ:PNRA), which is at 35.

Lululemon

Who thought yoga could be such a big-time business? Lululemon (NASDAQ:LULU) has shown that consumers are willing to pay hefty prices for high-quality yoga apparel.

But how big is this market? Might Lululemom be getting close to saturation? Keep in mind that the company’s target customer is mostly the affluent 30-ish female.

It isn’t tough to break into this market. Already, Nike (NYSE:NKE), adidas and Under Armour (NYSE:UA) are getting aggressive in yoga apparel.

So at 63 times earnings, Lululemon is definitely only for those who can tolerate a lot of risk.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, http://investorplace.com/2012/03/3-momentum-stocks-poised-for-a-fall/.

©2014 InvestorPlace Media, LLC

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