Companies That May Be Overvalued
Some of the high-trading companies in U.S. and international markets are "blue chip" stocks like Walt Disney and Coca-Cola, companies with a brand that they have built up over time, who have proven themselves to be able to weather fluctuations in the market. These are a solid investment. Other companies, however, though they may be getting a lot of buzz that drives their stock price up, may lose value in the future unless they address their problems. These companies may be candidates for "short selling" (betting that their stock will go down) or for unloading entirely.
Though the search giant has just reported another stellar quarter, it has also announced that it will be shuffling its top management, replacing Eric Schmidt (who admits that he was called in to provide "adult supervision" for founders Sergei Brin and Larry Page) with Page as CEO. Schmidt will still be on call as the company's executive chairman. However, Computer World news analyst Juan Carlos Perez wonders if Google might be trying to fix something that isn't broken. Schmidt took Google to its current meteoric stock price, and Brin has no real executive experience. Could it speak to internal troubles within the company that have yet to come to light?
Netflix
This video rental company has revolutionized the industry with its user-friendly, inexpensive business model. However, it may have hit its ceiling, with growth among new U.S. consumers beginning to slow. Netflix believes online streaming is the future, and to maintain its impressive growth in the coming decade, it will have to gain access to many more titles that it can stream online.
This overvalued company has already begun its decline. On Dec. 1, 2010, it traded at $209.24 a share. On January 20, 2011, it closed at 185, according to The Globe and Mail. Market analyst StarMine applies the concept of intrinsic value - a company's value based on its projected growth over the next decade, and not by investor confidence - to Netflix, and the prognosis isn't pretty. To reach its intrinsic value, Netflix would have to drop 67 percent.
Salesforce.com
Another company known to be overvalued is Salesforce.com, which is a software solutions and enterprise cloud computing company, according to its website. StarMine thinks it is trading at nearly twice its intrinsic value. The company has taken advantage of the excitement generated by "cloud computing" among investors, but if that bubble bursts, Salesforce.com could be one of the first companies to plummet.