In looking for the most overvalued stocks, we considered metrics like price-to-sales, rapid stock price appreciation not supported by comparable financial growth, pricing and revenue pressure from competition, and future predictions of success like forward P/E. All of the stocks that we examined are large caps, and we have made an attempt to look across as many industries as possible.
Franklin Resources. (BEN) The large mutual fund and institutional investing firm trades at about $109, near its 52-week high. This is up from $29 in October 2003. The company currently has a price-to-sales ratio of 5.66 Janus Capital’s price-to-sales is 4.0. Legg Mason trades at 3.3 times.
In it most recent quarter, growth in revenue and assets under management slowed from the immediately previous quarter. The stock is actually down from the day of the earnings announcement on October 26. Assets under management grew 3% in October to $526.8 billion.
Franklin’s shares were recently downgraded by Prudential from "overweight" to "neutral" on growth and valuation concerns. Like almost all firms in the financial services sector, especially those in the consumer segment, Franklin has risk of both a drop in the stock market and any slowdown in asset growth due to a slumping economy and housing sector.
Morningstar’s "fair value estimate" for Franklin’s stock is only $77.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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