While there is some justification that it should sell at a premium given its strong balance sheet and double-digit annual production growth, it's crazy to think this company is that much stronger than the big oil trio to justify paying twice the cash flow multiple in light of the current turmoil in the oil market. Especially when Pioneer Natural Resources' cash flow is currently being propped up by its strong oil and gas hedges, while its larger rivals don't hedge at all. In fact, last quarter the company's hedges added $175 million to its operating cash flow, which only totaled $111 million during the quarter, meaning that hedge gains accounted for more than the entirety of its operating cash flow. Furthermore, it is worth noting that while Pioneer Natural Resources has 85% of its oil production hedged this year, only 50% is hedged next year, which leaves its cash flow all the more exposed to oil if prices remain lower for longer.
Bottom line: Investors are paying an awfully high price for the fast-growing Pioneer Natural Resources right now. While that bet could pay off if oil prices continue to improve, enabling Pioneer to continue its torrid growth pace, there's no guarantee that will happen.
Evan Niu, CFA : Most of the time, lofty valuations indicate heightened growth expectations for a company's future prospects. Either that, or earnings have taken a recent hit that is inflating the valuation metrics. In any event, for a company to live up to its premium valuation, it needs to exhibit either a strong business in terms of differentiation, pricing power, or other competitive advantages. Angie's List (NASDAQ: ANGI) is none of the above.
Trading at a blistering 310 times earnings, you might think that Angie's List was a high-growth tech name, but it's not. The company offers a marketplace of local services, connecting consumers with local businesses while providing reviews and background checks, among other things. In exchange, Angie's List charges a membership fee of a few dollars per month, with various volume discounts for long-term memberships. But 80% of sales come from service providers, which pay for advertising and e-commerce activities. As of last count, the company had 3.3 million paid memberships.
But despite the fact that Angie's List has operated for over two decades, the company still struggles to turn out a profit, which is partially why the company's earnings multiple looks so inflated. Last quarter, Angie's List put up no year-over-year revenue growth, but rising costs made the company swing to a $4 million net loss.
It's also not as if Angie's List is in growth mode; 2017 revenue is expected to grow a modest 6% over 2016 levels. This services marketplace is definitely not worth the crazy valuation.
A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here .