3 Fad Stocks to Sell Before They IMPLODE

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“In the short term, the market is a popularity contest; in the long term, the market is a weighing machine.” So goes the famous adage attributed to Warren Buffett, the world’s greatest stock-picker, dead or alive.

3 Fad Stocks to Sell Before They IMPLODE (SHAK, YELP, BOX)It’s always nice to catch a ride on a popular stock every now and then — but if you’re looking to build a stable, long-term portfolio or save for retirement, you don’t want to count on the flavor of the week.

The dot-com boom was probably the best example of how latching onto the hot stock du jour can ruin a portfolio. Simply adding an “e-” or a “.com” to a company’s name could send it skyrocketing overnight.

What happened, Pets.com? You mean to say there wasn’t unlimited potential and infinite scalability in pet food and accessories?

It’s not like modern day Pets.com-type companies are going public left and right in the stock market today, but there are still a handful of stocks with faddish characteristics you’ll want to stay far away from.

Fad Stocks to Sell: Shake Shack (SHAK)

Fad Stocks to Sell: Shake Shack (SHAK)Forward P/E: 154
Faddish Element: “No hormones or antibiotics! Vegetarian fed!”

Shake Shack (SHAK), the popular burger chain that’s growing like wildfire, has also taken the stock market by storm this year. After going public at $21/share, the stock more than doubled in its first day of trading, before running up to highs approaching $100/share.

Shortly thereafter, investors realized that they were paying several hundred times forward earnings for a burger joint.

Unfortunately, SHAK stock still trades at elevated and unsustainable levels, running on fumes from its initial public offering hype (and admittedly delicious burgers).

On a per-store basis, Shake Shack was being valued at nearly $30 million per restaurant as recently as August — more than twice what Chipotle (CMG), the next loftiest restaurant stock, was trading for.

No other public company fetches more than about $4 million per restaurant. If you’re looking for fad stocks to sell, SHAK ain’t a bad place to start.

Fad Stocks to Sell: Yelp (YELP)

Fad Stocks to Sell: Yelp (YELP)Forward P/E: 1,216
Faddish Element: Mobile, social

Mobile is here to stay, and so too is the “social” element of the web. But when you slap the two together and pretend that their buzzy combination alone is a reason to buy … well, I’m not buying it.

Yelp’s (YELP) position in the consumer reviews industry is tenuous at best; both Alphabet (GOOG, GOOGL) and Facebook (FB) either have or are developing similar or improved services that could completely usurp Yelp’s business practically overnight.

And the market isn’t done saturating yet. I wouldn’t be at all surprised to see Apple (AAPL) dip its toes in the online reviews market, especially given Apple’s recent foray into indoor mapping technology (think store-by-store reviews in malls and shopping centers).

But even if we throw caution to the wind and ignore the looming competition entirely, YELP stock is a dog. It’s unprofitable, and what was once its most attractive trait — its mobile presence — is no longer a convincing reason to buy. Mobile unique visitors grew by 22% in Q3, a sharp drop from the 37% seen in Q4 2014.

Next!

Fad Stocks to Sell: Box (BOX)

Fad Stocks to Sell: Box (BOX)Forward P/E: N/A
Faddish Element: 
“The Cloud!”

Cloud storage and enterprise collaboration company Box (BOX) went public in January to wide acclaim.

And, as we so regularly see with hyped-up IPOs, BOX stock ripped off incredible one-day gains, soaring 66% in its first day of trading to close above $23 a share. Since then, the stock has lost all of its initial pop — and more — and currently trades below its $14 IPO price.

Again, like YELP and SHAK, BOX is rapidly growing revenue — but it’s not profitable and major competitors abound.

Analysts expect BOX stock to lose $1.17 per share this fiscal year and 88 cents next fiscal year, with no profitability on the horizon. That’s why the price-to-earnings ratio is nonsensical … there’s no earnings to put in the denominator.

There’s no doubt that the cloud is changing the way we work, collaborate and store information, but that doesn’t make every company specializing in cloud-based services a buy. BOX has to go up against the likes of Microsoft (MSFT), Alphabet, Citrix Systems (CTXS) and Dropbox, to name just a few.

That’s a tough lineup of competitors, and with no black ink expected in the near future, it’s a very real possibility that Box will be bleeding cash for years to come.

As of this writing, John Divine was long AAPL stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/11/stocks-to-sell-shak-fad/.

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