With the stock market down on Tuesday, we are beginning to see some of the more popular growth stocks begin to roll over. What’s worse is that these companies’ stocks peaked back in December or January, declined into early February or April, and rose from there they failed to make a new high. Now they are rolling over again and I think that investors need to be very cautious, as it might be wise to take some profits.
While there are several stocks that fit this pattern, I have pointed out three. They are all growth stocks that investors have generally been bullish on considering their growth rates. But investors need to consider the possibility that these companies can experience declining growth, and if this takes place analysts will be forced to reevaluate their optimistic price targets and their lofty valuation assumptions.
1. Mastercard (NYSE:MA)
Mastercard had an especially weak Tuesday: shares fell nearly 2 percent on high volume. The stock is down 13 percent year-to-date and it has followed the pattern that I just mentioned. Shares reached an all time high of $85/share around the turn of the year and they fell to about $68/share in April. Since then the stock rebounded to as high as $77/share, but recently the stock has been weakening, and it currently trades at just under $73/share. This pattern is extremely bearish because it suggests that selling pressure came into the market before the all time high could be tested, and this means that there is net distribution (i.e. more sellers than buyers.)
Mastercard has been rapidly growing its sales and earnings as one of the leading companies in the point of transaction technology space. A large portion of the Western world’s population holds at least one Mastercard credit or debit card, and the company is expanding throughout the world. However, this growth has begun to slow down as the market is becoming more saturated and global growth is decelerating. Now at 24.5 times forward earnings the shares seem a bit expensive, and I suspect that we can see further downside, especially if the company misses analyst estimates.