About halfway through the year, 2017 is shaping up to be yet another bullish run for stocks. While many are headed upward, some of the biggest contributors to the market's rise are well-known companies we've all heard of.
Highlighting the recent run-up of some of the most iconic brands in the stock market, three particularly hot stocks are hitting new highs in the last few trading days: Tesla (TSLA 3.94%), Amazon.com (AMZN 2.57%), and Netflix (NFLX 0.21%).
With the market apparently hyped about these stocks' potential, are any of them buys, or have their higher prices made them less enticing?
Shares of Tesla have been on a tear recently, trading at about $342 at the time of this writing. The stock is up an impressive 88% in the past six months. The soaring stock price comes as Tesla's Model 3 launch, which is slated for July, nears.
With Tesla's most recent vehicle launch (Model X) coming after years of delays, some investors may have expected the electric-car maker to delay its Model 3 launch as well. But as the vehicle's planned production draws closer, Tesla has reaffirmed ambitious production plans for the vehicle, aiming to hit a production rate of 5,000 vehicles per week before the end of 2017 and 10,000 vehicles per week in 2018.
But this brings us back to Tesla's stock. Given the significant jump in the stock price recently, as well as the fact that the rise itself is based almost entirely on forward-looking projections for uncanny growth, investors may be wise to put this investment on hold, waiting for shares to pull back to give investors a better entry point.
After crossing the $1,000 milestone recently, Amazon stock is trading at $1,006 at the time of this writing. The rising stock price recently reflects Amazon's excellent execution across a broad base of important segments, including e-commerce, cloud services, new product hardware (Alexa devices), and original TV shows. Furthermore, Amazon has demonstrated strong revenue growth across its business -- revenue in Amazon's first quarter was up 23% year over year, and there's no reason to expect this growth to slow -- while also proving to investors that it can generate meaningful free cash flow.
Given Amazon's undeniable leadership position in both e-commerce and cloud services, as well as the company's excellent track record of successfully capitalizing on new growth opportunities, the market's exuberance for Amazon stock is well founded.
Even at just over $1,000 a share, I think Amazon stock is a buy.
It's no wonder investors are excited about Netflix. Revenue is soaring, up 35% year over year in the company's most recent quarter. Also, operating margin has increased from 2.5% in the first quarter of 2016 to 9.7% in the first quarter of 2017, demonstrating the solid economics of Netflix's business. Finally, Netflix continues to attract new members in droves; the streaming-TV company added 5 million members in the first quarter, and total members have now passed 100 million.
But Netflix's valuation may be getting ahead of itself. One way to illustrate this is with Netflix's price-to-sales ratio in the context of analysts' revenue growth expectations. Its price-to-sales ratio of 7.6 easily trumps Tesla's and Amazon's, at 6.1 and 3.4, respectively. Yet analysts expect Netflix's revenue to increase at the lowest rate next year. On average, analysts expect revenue for Netflix, Tesla, and Amazon to increase 19.9%, 65.5%, and 20.8% next year, respectively. Sure, Netflix may be demonstrating stronger profit margin expansion than Tesla and Amazon, but a valuation like this may be already pricing in much of the upside to Netflix's prospects.
So, while I wouldn't be selling Tesla, Amazon, or Netflix, I would only call Amazon a buy today. Of course, I could be underestimating the degree to which these winners could keep on winning. Motley Fool's analysts for its premium services are still recommending all three.