Valuation is another big sticking point. Even if Guidewire were to grow by 23% to 26% in 2013 as its management forecast, it would need to earn about $0.78 in EPS just to maintain a PEG ratio of 2 (an aggressive growth level for high-tech companies). But, Guidewire’s estimates aren’t anywhere near $0.78. In fact, looking ahead to 2014, it’s only expected to net $0.48 for a forward P/E of 80!
Simply put, competition in this space is increasing and revenue is only going to slowly taper off. While Guidewire is rocking now, its results are going to be very difficult to compare to previous years, perhaps beginning as early as the second half of 2013. I’d suggest bringing your expectations down a few notches on Guidewire.
Don’t tread on me
There are quite a few sectors taking full advantage of consumers’ push toward a healthier lifestyle. Starbucks Corporation (NASDAQ:SBUX), for instance, has been a revolutionary force in promoting local and organic products in its stores to encourage healthier eating habits and to cater to requests for more nutritious options.
You’d think this trend would play perfectly into Nautilus, Inc. (NYSE:NLS)‘ hands, since it makes various fitness products like treadmills and ellipticals, but I feel that Nautilus, Inc. (NYSE:NLS)’ product line presents plenty of unforeseen risk.
For starters, Nautilus, Inc. (NYSE:NLS) sells its products directly to the consumer. If Nautilus, Inc. (NYSE:NLS) was working with brand-name gyms (which I also don’t particularly care for), I could potentially support this valuation as the gym business is highly cyclical and big replacement orders could be boosting current sales. However, targeting only consumers via television and Internet advertising leaves Nautilus incredibly exposed to falling sales from higher payroll taxation and unforeseen economic downturns.
Another factor that turns me off of Nautilus, Inc. (NYSE:NLS) is the aforementioned cyclicality of the business. Loyalty among consumers to gyms and for fitness products is minimal at best, and those products and memberships tend to be the first thing to go if consumers’ personal finances take a turn for the worse.
Foolish roundup
This week’s theme is all about keeping your emotions and expectations in check. With Dynegy Inc. (NYSE:DYN) projecting a large annual loss, Nautilus, Inc. (NYSE:NLS) susceptible to rapidly changing consumer spending habits, and Guidewire facing some stiff comparable-sale comparisons, all three companies could afford to be knocked down off their pedestal.
The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool recommends Johnson & Johnson and Starbucks. The Motley Fool owns shares of Johnson & Johnson and Starbucks.
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