Analysts are usually revered pieces of flesh in markets and even though they are often proved wrong, a formidable counter attack to their line of thinking can only be successfully presented with the help of hindsight. While the amount of research that goes into their recommendations is phenomenal, they have their own share of mistakes like most other people. This naturally beg the question if the recent stock upgrades of Tesla Motors Inc (NASDAQ:TSLA), Groupon Inc (NASDAQ:GRPN), and Bankrate Inc (NYSE:RATE) fall into the oversight category.
Tesla Motors Inc (NASDAQ:TSLA), Groupon Inc (NASDAQ:GRPN), and Bankrate Inc (NYSE:RATE) Stock Upgrades
By now, Tesla Motors Inc (NASDAQ:TSLA) is a known name and even staunchest opposers of the idea of battery powered vehicles reckon that it has done a nifty job in the nascent market. The company has recently released a barrage of encouraging updates about its products – aimed at making these expensive vehicles affordable to mass market users. Tesla Motors Inc (NASDAQ:TSLA), which has already run up in expectations of the company turning profitable soon, also got support from a recent price target upgrade by Baird from $45 to $62. Tesla Motors Inc (NASDAQ:TSLA) stock has gained over 60 percent in the last 12 months and currently trades at a forward price earnings multiple of 40.9. In all fairness, Tesla Motors Inc (NASDAQ:TSLA) is an Apple-wannabe and most of its bets have played out well so far but these are expensive valuations are any standards. This is not to suggest that the company is doomed but one should know it is not a good time to enter a stock when Tesla Motors Inc (NASDAQ:TSLA)’s price crosses 50 times the book value per share.
Groupon makes comeback on analysts radar
Another stock that has received ratings upgrade recently is Groupon Inc (NASDAQ:GRPN) Analysts at Evercore Partners reckon the stock is worth $5, up from earlier target of $4.3. Interestingly, this reflects a discount to its current market price. The company is likely to present its first quarter earnings on May 13 and going by the recent quarterly updates, it could be yet another instance of depressed numbers. The management should be given full marks for maintaining top line growth even though its losses continue to swell. In the December quarter, revenues grew 29.7 percent to $638.3 million but losses widened to $80 million from $59.7 million in the fourth quarter of 2012. The stock has recovered smartly from its November lows and has advanced 38 percent in the last six months but a forward price earnings ratio of 20 means further upside may be capped.
Meanwhile Bankrate Inc (NYSE:RATE) jumped in double digits after beating analyst expectations for the first quarter. The company, which publishes, aggregates, and distributes personal finance content on the Internet, reported a 13 percent drop in revenues for the first quarter at $108.4 million compared to $125 million for the same period last year. Net income for the quarter also dropped to $2.2 million from $10.2 million in the first quarter of 2012. These numbers are down from same period last year but represent improvement on sequential basis. The company also reaffirmed its earlier committed full-year guidance of flat revenues and adjusted EBITDA margin in the low to mid 20% range. This led analysts to get bullish about the stock and raise their ratings. However, a look at fundamentals reveals the upgrades me be ill-timed.
The stock trades at a price earnings ratio of 46.5 and though it drops to a reasonable level of 20.4 on forward basis something tells that forward earnings isn’t a particularly good metric in case of these companies. All said and done, the company’s business model revolves around collecting information and delivering it online – a task which does not require a great deal of capital and resources. In this vein, it resembles Groupon Inc (NASDAQ:GRPN) which initially stunned investors with strong growth numbers but couldn’t protect its market share as other players ate into its pie due to low barriers to entry.
Overall, these analyst upgrades should be taken with a pinch of salt as these appear nothing more than directional calls on a soaring market.