Friday’s Top Upgrades (and Downgrades): Skullcandy Inc (SKUL), Pandora Media Inc (P), Zillow Inc (Z)

There’s just one problem with that prediction: It’s dead wrong.

Revenue growth notwithstanding, Pandora ended last year burning cash at a rate 38.5% greater than the rate at which it was burning greenbacks in 2011. GAAP “earnings” — by which I mean GAAP losses — more than doubled. Long story short, while Pandora may be doing a fine job of collecting revenues, it’s doing a lousy job of generating enough revenues to offset the costs — and continues losing money.

To me, that’s not the kind of trend that justifies raising a target price on the stock. Just the opposite.

And speaking of overvalued tech stocks…
Finally, we come to Zillow.com, the go-to site on the Interwebs for voyeurs who want to peek through the windows at the neighbors and find out how much their house is worth. Historically low mortgage rates, combined with a near-17% plunge in homes for-sale on the market, have StreetInsider.com lamenting an “inventory shortage” in housing — and boosted the fortunes of sites like Zillow Inc (NASDAQ:Z) that help home-shoppers identify what few houses are actually available for sale.

This trend caught the eye of analysts at The Benchmark Company this morning, prompting them to “reinitiate” coverage on Zillow Inc (NASDAQ:Z) at a buy rating, and with a $60 price target. The problem here is… Benchmark is coming late to the party. Up 66% in share price over the past year, Zillow Inc (NASDAQ:Z) already looks dreadfully overvalued at a market cap of $1.7 billion and a P/E ratio of… 275!

Granted, things aren’t quite as bad as these numbers make them sound. With nearly $20 million in free cash flow generated over the past year, Zillow Inc (NASDAQ:Z)’s churning out cash at a rate three times as fast as GAAP accounting standards lets it report “earnings.” Still, that works out to a price-to-free cash flow ratio of more than 80 — quite pricey, even for a company expected to grow its profits north of 30% per year over the next five years.

Long story short, despite the firm’s strong cash production, I’d still rather be short this stock than long.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Zillow. The Motley Fool owns shares of Zillow.

The article Friday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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