Hot Stocks — Zillow (Z)
Real estate listing and information website Zillow (Z) saw its shares soar 20% last week — hitting new record highs in the process — taking a cue from Trulia (TRLA) shares. Trulia, a competitor to Zillow, reported enormous sales growth for its previous quarter around that time, and it was widely presumed that if its peers were doing well, then Zillow must be doing well too.
And truth be told, it’s not a bad logic. What’s good for the goose is apt to be good for the gander, which is why the market made a knee-jerk decision to wade in — en masse — to both of these hot stocks. The doesn’t mean the market is right about Z stock, however. In fact, the recent bullishness may well be a setup for a sizable pullback.
As it turns out, the professionals expect Zillow to report a 62% jump in its top line when it posts first quarter results after the close on Wednesday … but the company is also expected to post a loss of eight cents per share of Z stock (versus a profit of one cent per share in the same quarter a year earlier).
Granted, Trulia shares also showed a weakening bottom line in conjunction with its huge jump in revenue, but that wasn’t the focal point on April 29th. At some point, however, investors are going to have to acknowledge the fact that the bottom lines for these hot stocks are pointed in the wrong direction, and they could be on that troubled path for a while.
Another round of earnings news may well provide a reminder that this growth has an ugly side, pulling the rug out from underneath Zillow now that there are some profits to be taken.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.