September 30, 2011 at 13:34 PM EDT
3 Stocks Ready to Get Booted From the $100-Plus Club
These high-fliers are facing too many headwinds and/or competition to stay above the $100 mark indefinitely.
Having a three-digit stock price is impressive. If anything, it’s an indication that a company probably has been consistently rewarding its shareholders. Look at examples like Priceline (NASDAQ:PCLN), Apple (NASDAQ:AAPL) and AutoZone (NYSE:AZO).
Who might be next? Well, let’s take a look at three:Netflix
Netflix (NASDAQ:NFLX) has been a great innovator in video streaming service. But lately, the management has acted like its old rival, Blockbuster. Why did Netflix think it could hike prices 60% on its subscribers? What was the logic?
True, it is a way to transition its business away from the DVD-delivery segment. Yet it looks like the move has mostly just angered customers.
And competitive pressures are getting more intense. Just look at the name value of some of Netflix’s rivals: Microsoft (NASDAQ:MSFT). Apple. Amazon (NASDAQ:AMZN). Even Blockbuster is making a play for the streaming market via Dish Network (NASDAQ:DISH).
So while Netflix is trading at a relatively cheap 28 times earnings, there still could be more downside until there is support in the stock price.Baidu
Baidu (NASDAQ:BIDU) currently is trading around $104. Yet its valuation still is high, with the price-to-earnings ratio of 47.
True, Baidu has a tremendous online footprint in China and has been adding more services. But if the country is experiencing a real slowdown, it’s inevitable the company will suffer from cutbacks in ad spending. It’s an easy thing to pull back on.Chipotle
OK, Chipotle‘s (NYSE:CMG) stock price currently is at $305. Then again, it was not long ago that Netflix was trading around this level, and look at it now — NFLX is around $111. In other words, in the wild world of momentum investing, a stock can break down quickly.
As for Chipotle, the company is selling at a nose-bleed multiple of 50 times earnings. And the margins already are coming under pressure because of rising commodities prices. But more importantly, as the economy continues to slow down in the U.S., how will people continue to justify buying $8 burritos? They won’t.
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