Why Rocket Fuel Inc. Might Pull Back

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While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Rocket Fuel Inc (NASDAQ: FUEL  ) sank 2% this morning after BMO Capital downgraded the digital advertising technologist from outperform to market perform.

So what: Along with the downgrade, analyst Dan Salmon planted a price target of $50 on the stock, representing 25% worth of downside to yesterday's close. While momentum traders might be attracted to Rocket Fuel's red-hot stock price of late, Salmon is concerned the valuation has surged too far, too fast.

Now what: BMO remains bullish on Rocket Fuel's growth prospects, but believes the current risk/reward trade-off is unattractive. "[A]fter yesterday's +13% move, the stock has busted through its recent trading range that has seen it move from the high $30s in mid-November to over $71 intraday today," noted Salmon. "At these levels, we can no longer advise investors to put a new dollar to work in the stock without an incremental leg to our thesis."

When you couple that massive run-up with Rocket Fuel's still-unprofitable and speculative nature, it's tough to disagree with BMO's cautious stance.

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Brian Pacampara

I take a look at big 10% moves, as well as stock-shaking analyst calls, on a daily basis for The Fool. While I don't believe in active trading, closely monitoring Mr. Market's mood swings can help identify long-term opportunities.

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9/1/2015 3:59 PM
FUEL $6.12 Down -0.01 -0.16%