The Dow Jones Industrial Average is on a nine-day winning streak as of this writing and it appears as if the market can do no wrong. For skeptics like me, that’s an opportunity to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. Hard-disk drive maker Western Digital Corp. (NASDAQ:WDC), for example, trades at a bare-bones valuation because investors are concerned about increased commoditization and weaker PC sales weighing on earnings. However, with Western Digital able to double-dip in cloud computing, supplying the storage for both the computers and the data centers, it still has plenty of growth yet to come.
Still, other companies might deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
What’s soon to be black and blue all over?
Sometimes even having one of the most prestigious names in publishing isn’t enough to save your stock from the dreaded red thumb. That’s the case of The Washington Post Company (NYSE:WPO), which is currently the most-shorted stock within the S&P 500 based on days to cover according to Forbes.
The problem with Washington Post is that I can’t stomach many of their business segments. Newspapers have slowly been bleeding customers for years with most content moving to a digital platform. This isn’t to say that The Washington Post Company (NYSE:WPO) is twiddling its thumbs while this happens as it’s set up digital media platforms as well – but the trend has been decisively away from paying for newspaper content. As evidence, its newspaper publishing division’s revenue declined 7% in 2012 to $581.7 million.
Even worse is its educational segment, headed by Kaplan University. Kaplan is among the many online for-profit universities that have come under increasing regulatory scrutiny for the way they market themselves to potential students, divvy out student loans, and portray promises of employment after graduation. Revenue in this segment fell a whopping 9% in 2012 to $2.2 billion and accounts for about 55% of Washington Post’s total revenue.
Tack up these two dying segments and you’ll get about 70% of The Washington Post Company (NYSE:WPO)’s revenue. Even if its cable television and television broadcasting segment grow by double digits, there’s really no way this should be valued at close to 20 times forward earnings.
Match the estimate, I dare you!
Anything related to housing is hot, hot, hot, right now! That goes the same for listing services such as Move Inc. (NASDAQ:MOVE) which operates Realtor.com and allows online users to browse listings and peruse moving companies. But the one big beef I have with Move that I just can’t let slip by: It can’t meet Wall Street’s earnings estimates to save its life.
| Quarter + Year | Consensus EPS | Reported EPS | Surprise |
|---|---|---|---|
| Q1 2010 | $0.05 | $0.08 | $0.03 |
| Q2 2010 | $0.06 | $0.04 | ($0.02) |
| Q3 2010 | $0.07 | $0.04 | ($0.03) |
| Q4 2010 | $0.07 | $0.04 | ($0.03) |
| Q1 2011 | $0.06 | $0.00 | ($0.06) |
| Q2 2011 | $0.04 | $0.08 | $0.04 |
| Q3 2011 | $0.05 | $0.04 | ($0.01) |
| Q4 2011 | $0.09 | $0.12 | $0.03 |
| Q1 2012 | $0.05 | $0.00 | ($0.05) |
| Q2 2012 | $0.08 | $0.04 | ($0.04) |
| Q3 2012 | $0.07 | $0.04 | ($0.03) |
| Q4 2012 | $0.07 | $0.04 | ($0.03) |
Source: E*Trade.
Move has missed analysts estimates — in most cases by a mile — in nine of the past 12 quarters and shareholders are sending this to a new high?! Some may point to its reasonably low forward P/E of 16, but to that I counter, “What happens when Move Inc. (NASDAQ:MOVE) misses in the next three of four quarters and suddenly you’re staring at a forward P/E of 30 or higher?” A 10-year glance at Move’s financial results shows a company that’s range bound, with the company expecting to generate roughly $5 million more in revenue at the mid-point than it made in 2003. With unimpressive cash flow and a long history of disappointment, I’m going to suggest you “Move” on.
