At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.
But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.
And speaking of the best …
Roth Capital initiated coverage of Chinese advertising mogul Focus Media (Nasdaq: FMCN ) this morning, telling investors to buy the stock and predicting a $51 price point within a year. This banker believes that Focus Media "will be a top Chinese outdoor media player for years," and predicts that with the Olympics past, Focus Media could see a surge in advertising revenue as non-Games-sponsors return to the ad market. And how do investors respond?
As I look at the stock right now, it's trading exactly flat against yesterday's price. So what does it mean, I wonder, when an analyst shouts: "Look! Over there! That stock's going up 70% this year!" and investors just shrug?
It means that times are tough, and investors are nervous.
With markets stumbling all over themselves, searching for a bottom, we're starting to look askance at pie-in-the-sky promises. But I wonder: Does this mean we're wising up or missing out?
Let's go to the tape
In this particular case, I rather think the former. You see, Roth isn't a terrible stock picker. It did pick salesforce.com (NYSE: CRM ) after all -- a stock panned in CAPS-land that's nonetheless crushing the market by 50 points since Roth picked it. Conversely, Roth sided with the CAPS majority on Natus Medical (Nasdaq: BABY ) -- a five-star stock that's romping to a 64-point victory over the market.
But Roth also picked ...
|
Company
|
Roth Said
|
CAPS Says
|
Roth's Pick Lagging S&P by
|
|
A-Power Energy (Nasdaq: APWR )
|
Outperform
|
****
|
28 points
|
|
Xinyuan Real Estate (NYSE: XIN )
|
Outperform
|
*****
|
14 points
|
|
GigaMedia (Nasdaq: GIGM )
|
Outperform
|
*****
|
5 points
|
|
China Fire & Security
(Nasdaq: CFSG )
|
Outperform
|
*****
|
4 points
|
... a quartet of Far Eastern companies that are currently howling in pain (and in harmony with their shareholders).
Sure, Roth has picked winners in China as well -- Yucheng Technologies and Shengdatech spring to mind -- but in general, Roth's performance seems a few rungs short of a ladder to success. The banker gets only about 45% of its picks correct, helping to nail its CAPS rating in to the 68% percentile.
It's hardly a record designed to inspire confidence, and when attached to an apparently pricey pick like Focus Media, not one likely to set the shares to soaring. Focus Media already carries a sky-high P/E ratio north of 54, and its price-to-free cash flow ratio isn't much better -- 49.
Foolish takeaway
I admit I'm intrigued by analyst estimates of 31% long-term growth, and the fact that Focus has received the thumbs-up from not one, but two Fool publications -- Motley Fool Global Gains and Motley Fool Rule Breakers. Still, Roth's predictions of 70% profits look to be of the pipe dream persuasion.
Sure, those would be sweet profits if they materialize a year from now. But considering the valuation today, I certainly understand if investors prefer to take a pass on this one.
RSS Headlines
Fool UK