The stock market has enjoyed quite a bullish ride over the past five years. The Dow Jones Industrial Average increased 71% and the S&P 500 increased 95% during this time, and it has risen far more than that since the March of 2009 lows. The stocks of some companies have also really performed well over the past five years pushing their price-to-earnings (P/E) ratios (if they have one) into the stratosphere.
The stock prices of these companies will most likely fall the hardest during a correction. Investors eyeing the high valuation tend to get trigger happy with the sell button at the slightest amount of bad news. Let’s take a look at some of these stocks below.
Shares of online retailer Amazon.com Inc. (NASDAQ: AMZN) increased a whopping 313%, versus 95% for the S&P 500 over the past five years. Currently the company has no calculable P/E ratio due to its loss in 2014. Its net income history is spotty, and its free cash flow reading is a roller coaster, as the company invests in its infrastructure to expand. Trading at $535.00, Amazon has a 52-week range of $284.00 to $580.57. Its consensus analyst target price is $650 or so.
Chipotle Mexican Grill
Fast casual Mexican restaurant chain Chipotle Mexican Grill Inc. (NYSE: CMG) saw its shares expand 398%, versus 95% for the S&P 500 as a whole. Chipotle Mexican Grill’s P/E ratio clocks in at a sky-high 46 times earnings. The company saw its revenue, net income and free cash flow increase steadily since 2008. At $749.50, Chipotle has a consensus analyst target price of $745.82 and a 52-week range of $597.33 to $758.61.
Online streaming company Netflix Inc. (NASDAQ: NFLX) saw its shares increase 553%, versus 95% for the S&P 500 as a whole. Netflix’s P/E ratio resides at an astounding 272 times earnings. Moreover, the company has not been free cash flow positive since 2011. At $124.25 on a post-split basis, Netflix has a consensus analyst target price of $116.85 and a 52-week range of $45.08 to $129.29.
Google (or Alphabet)
Technology conglomerate Google Inc. (NASDAQ: GOOGL) saw its shares expand 202%, versus 95% for the S&P 500. The company sports the lowest valuation in this group at 33. Google saw its revenue and net income rise steadily for the past decade. Its free cash flow rose steadily until 2012 when a huge increase in capital expenditures broke the streak. Trading at $687.00, Google has a consensus price target of about $757.00 and its 52-week range is $490.91 to $713.33.
Soaring stock prices, high valuations and in some cases spotty fundamentals all serve as a recipe for a massive bloodbath of a correction for these stocks. Investors beware.
William Bias owns shares in Chipotle Mexican Grill.