How to Know if You Own a ‘Bubble Stock’

This is for the misinformed canaille, men clad in velcro under-garments, carousing and gerunding about the market place in a very solicitous manner.

Instead of giving you stupid subjective opinions on whether or not you’re holding onto a pin-less hand grenade, I offer you mathematical certainty, something absent and abhorrent to the clowns shooting themselves out from carnivale cannons all day long on Twitter. My beef with Twitter is uncompromising and relentless, so do not attempt to dissuade me from killing them.

I ran a screen to find stocks down more than 20% over the past 3 months, with market caps over $500 million. These are some of the traits that these bastard companies possess. Keep in mind, these stocks are already down.

Average loss: 32.2%
Average PE: 69.31
Average Qt. Revenue Growth: 55.6%
Average p/b: 10.8
Average p/cash: 4.86
Median mkt cap: $1.1bill
Median p/s: 4.2

The bottom line: If you own a stock that is losing money, it is subject to crush your skull in. If you own a stock with a PE above 50, it is subject to crush your skull in. Although your company is growing rapidly, should its hairy chested price to sales ratio be above 5, it’s prone to crushing skulls in during periods of duress.

By definition, an old man stock is one with a dividend yield above 2%, market cap above $5 billion, PE ratio below 15 and p/s ratio under 2.5. Now if you want risk and safety (oxymoron alert!), you’ll need to do some research into what I like to call GARP names. I’ve mentioned them numerous times on this blog and if you cannot remember the damned hallmarks of a growth stock at a reasonable price, then I am wasting my time here.

Futures are lower. Expect to see further blood letting in “bubble stocks.”

NOTE: Should your company ever parade animated candies on the NYSE, it’s probably a bubble stock.