Buy high, sell higher? Last week, I took a look at four promising stocks that had doubled over the past year. I promised to return with more rallying stocks that appear to be ready to continue their recent runs.
Well, I'm back.
If you're done digesting the first four stock ideas, let's dig into some more.
1. Shanda Interactive
But the beauty behind Shanda is that you don't even have to project the company's earnings power in the future. It is doing incredibly well right now. During the first quarter, Shanda's revenue more than doubled, with earnings soaring by 163%. Good luck trying to find a stateside company with 44% in net margins. The company has earned $1.24 a share over the past year. That prices it at just a little better than 30 times earnings. Given the company's growth and fat margins, that's certainly a reasonable multiple. Go back a year, when the company was trading at just 15 times what its forward earnings would produce, and it's easy to see why Shanda's shares have doubled. As long as momentum plays nicely in Shanda's corner, it's not too hard to fathom folks kicking themselves and making the exact same argument in the summer of 2006.
That's not how it always works. So when you learn that Bankrate's shares have tripled over the past year, let's put that into the appropriate context. Consider a company like Homestore.com
However, revenues haven't exactly gone through the roof at Bankrate. The company's top line was up by just 11% in the March quarter, after inching 7% higher in 2004. The real story here has been the company's ability to trim expenses without sacrificing its sales growth. That has created a spike in operating profits. As the company expands into new consumer banking channels and takes advantage of the growing interest that content-rich providers are commanding from sponsors, Bankrate's stock path is likely to follow Greenspan's trigger finger higher.
3. Children's Place
Earlier this month, the company stuck to its guidance, calling for earnings to come in between $2.15 and $2.25 a share this year. Comps are climbing steadily at its flagship chain, and there is so much upside potential if the company is able to turn the Disney Store business around. Analysts expect next year's earnings to rise to $2.88 a share, but that doesn't price in what may be a dramatic revival at Disney Store.
Why? Well, Disney Store was once a jewel in Disney's crown. It was a way for Disney to sell retail merchandise and work some brand ambassadorship in a mall experience. Disney strayed and expanded too quickly. Some may believe that an outsider has little chance of fixing Disney's languishing chain. I disagree. Children's Place knows retail. It knows how to market to kids and their currency-toting parents alike. Trading at 17 times next year's earnings, that's more than a fair price. It might be an even fairer price if Children's Place turns Disney Store around quickly, earning more than $2.88 a share next year in the process.
Now, the first wave of platform introductions can be slow. The consoles are pricey, but they are also low-margin producers for the video game outlets. Their real gravy comes in the higher-margin video game software that typically peaks a few years later. That's OK. It will give Gamestop plenty of time to complete the digestion process.
Fill my eyes with that double vision
Want more than four? Of course. The more the merrier. A few of the stocks that have been singled out in our Motley Fool Rule Breakers newsletter service actually doubled before they went on to produce greater gains. In fact, one of the four stocks in this story is an active recommendation.
Curious? Want to see whether this kind of aggressive growth investing is right for you? Take us up on a 30-day free trial and give it a shot.
Oh, yeah -- and keep doubling, my friend.
Longtime Fool contributor Rick Munarriz thinks that ground-rule doubles work. He does own shares in Homestore.com and Disney. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.