Would you pay 32x forward earnings for a retailer?
Amazingly, this is the valuation other “investors” have put on the top 5 holdings in the S&P retailer fund. S&A’s Frank Curzio writes:
The top five holdings in the S&P retailer fund are trading at an average forward price-to-earnings ratio of 32. That’s more than twice as high as the average P/E ratio for companies in the S&P 500. In other words, most retail stocks are priced for perfection.
We saw what happens to expensive companies that miss earnings estimates. Cloud-computing company F5 Networks plunged 30% after missing earnings estimates. Networking giant Cisco dropped 15% after reporting earnings. I think we’ll see similar pullbacks in retail stocks when they report earnings next quarter.
Read Curzio’s full piece at Growth Stock Wire
He cites the highest cotton prices since the Civil War (!) – along with FedEx’s recent earnings outlook bomb, as fundamental reasons retailers could come under pressure. And if they do, they sure appear to have a loooooong way to fall.
Retail stocks – what’s not to like in this economy?