The risk/reward proposition for investors looks unfavorable due to a combination of industry lagging profitability, alarming expense growth, poorly-aligned executive compensation incentives, and high market-implied expectations for future profits.
The Large Cap Growth style ranks fourth out of the twelve fund styles as detailed in our 3Q16 Style Ratings for ETFs and Mutual Funds report. It gets our Neutral rating.
Demandware IPO’d in 2012 based on plans to create shareholder value by providing e-commerce platforms for retailers and brands worldwide. So far, the plan is not working as the company’s profits have declined. Paradoxically, the stock price has climbed over 140% since its IPO. The stock is dangerously overvalued and earns a place in the Danger Zone this week.
The true sign of a bubble stock is when investors see only opportunity without factoring in any of the risk, which is exactly what’s happened with NFLX. With this European expansion, bulls are dreaming of revenue growth and a global streaming giant without factoring in the significant hurdles NFLX faces and the high costs it will incur.