The market is filled with companies with a lot of hype which are touted as great investments, but Benjamin Graham taught that intelligent investors must look past the hype and avoid speculating about a company’s future. By using the ModernGraham Valuation Model, I’ve selected five of the most overvalued companies reviewed by ModernGraham.

Each company has been determined to not be suitable for either the Defensive Investor or the Enterprising Investor according to the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.

5 Speculative and Overvalued Companies to Avoid:

eBay Inc. (EBAY)

Ebay Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, the lack of dividends, and high PEmg and PB ratios. The Enterprising Investor is concerned by the lack of dividends and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.75 in 2011 to an estimated $1.33 for 2015. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.38% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. (See the full valuation)

Autodesk Inc. (ADSK)

Autodesk Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, lack of dividends, and the high PEmg and PB ratios. The Enterprising Investor is concerned by the lack of dividends and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.22 in 2012 to an estimated $0.96 for 2015. This level of demonstrated earnings growth does not support the market’s implied estimate of 28.41% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. (See the full valuation)

Alexander & Baldwin Inc. (ALEX)

Alexander & Baldwin Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the small size, low current ratio, short history, and the high PEmg ratio. The Enterprising Investor is concerned by the level of debt relative to the current assets and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $0.99 in 2011 to an estimated $0.90 for 2015. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.53% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. (See the full valuation)

Acxiom Corporation (ACXM)

Acxiom Corporation does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, lack of dividends, and the high PEmg ratio. The Enterprising Investor is concerned by the level of debt relative to the net current assets, the lack of dividends, and the insufficient earnings stability over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $0.17 in 2011 to only $0.18 for 2015. This level of earnings growth does not support the market’s implied estimate of 45.7% annual earnings decrease over the next 7-10 years, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price. (See the full valuation)

Aecom (ACM)

Aecom does not qualify for either the Defensive Investor or the Enterprising Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, lack of dividends, and the high PEmg ratio. The Enterprising Investor is concerned by the level of debt relative to the current assets, the lack of dividends, and the insufficient earnings growth or stability over the last five years. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.93 in 2011 to an estimated $1.50 for 2015. This level of earnings growth does not support the market’s implied estimate of 6.05% annual earnings decrease over the next 7-10 years, and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price. (See the full valuation)

What do you think? Are these companies a bad opportunity for Intelligent Investors? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer: The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing those holdings within the next 72 hours. Logos are taken from either the company page or Wikipedia for purposes of identifying the company only; ModernGraham has no affiliation with the companies.

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