Beware These Companies Running Out of Cash

Tuesday, December 09, 2014 Beware These Companies Running Out of Cash   by Jamie Dlugosch   The market pundits today like to compare the current state of affairs to the unforgettable dot-com bubble.   Whatever the reason, the comparisons of today to then fall short.   Barron's is out with an interesting comparison of then and now that is compelling and also might help investors avoid the same mistakes made then.   Specifically on March 20, 2000, the financial weekly published a cover image of burning cash, suggesting that many of the stocks in the market at that time would surely run out of cash and soon.     FURTHER READING Proven to Beat the Market   Over the last 40+ years, one type of stock has beaten all others, racking up returns in excess of 4,300% in bull and bear markets, booms and busts! Get the names of 5 of these unique stocks to buy now, FREE. Click here.     The headlines were prescient. Within a month of that cover, the technology-laden Nasdaq had fallen more than 30% on its way to the bursting of the dot-com bubble for precisely the reasons laid out by Barron's.   A company without profits and no cash is a dead company.   That may sound obvious today, but it wasn't so much the case in early 2000.   Back then early-stage companies could raise hundreds of millions by going public with nothing more than an idea on the back of a napkin.   The crazier the better, it seemed.   The Barron's article  in March 2000 identified  51 internet companies  as likely to run out of money within a year's time.   In today's examination of the market,  only 5 companies  look to be out of cash in the next 12 months.   On that basis alone, the market today is not nearly as expensive as it was before the dot-com crash.   Price-to-earnings multiples of the major indexes suggest the same.   Today you have a Dow, S&P 500 and Nasdaq trading for 15, 17 and 22 times earnings respectively.   Back in March 2000, those multiples were at 18, 30 and 102 times earnings respectively.   With that data alone we can quiet those who suggest that another crash is coming based on valuation.   The logic just doesn't make sense.   Another big difference is on the micro level. Those five stocks identified as soon to run out of cash have already seen their stock market values collapse. All five are down substantially this year.   If the market was truly poised to collapse today in bubble fashion, these stocks would still be soaring.   They are not.   One of the five, Silver Spring Networks (NYSE: SSNI), does have a valuation of nearly $400 million -- thus there is money to lose here when and if this company does indeed run out of money.   Same goes with E2open (NASDAQ: EOPN). This supply-chain logistics company is holding tough with a $200 million-plus valuation and a nice Outperform rating from Northland Capital.   The Wall Street firm upgraded the company without any regard to the possibility that the company will soon run out of cash, according to Barron's.   I suspect the attraction is a falling stock price, but if there was anything learned in the dot-com bubble, it is that a falling stock price can always fall further.   I'd avoid both of these stocks. The risk of failure is real and if experience is worth anything it is that history can and does repeat.   Jamie Dlugosch Editor Investor Research Institute   To Read More From Investor Research Institute Click Here
Disclaimer & Important Information Investorresearchinstitute.com is owned and published by Investor Bistro, LLC of Richmond, Vermont. Investor Bistro is neither a registered investment adviser nor a broker/dealer. Readers are advised that this electronic publication is issued solely for information purposes and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. We encourage you to review our full Disclaimer and Disclosure policies. To view our Disclaimer Policy, please click here. To view our Disclosure Policy, please click here. You are subscribed with the following email address: ignoble.experiment@arconati.us To unsubscribe from this newsletter, please click here.	Copyright (c) 2014 Investor Research Institute| Privacy Policy 65 Railroad Street Richmond, VT 05477 PO Box 790