My Two Best Short Ideas for 2016W) and Mobileye (MBLY). Let’s take a look at the reasons why I think Wayfair and Mobileye have massive downside potential.
Over the years, I have been very successful in shorting companies that have a history of making loss.
Wayfair is just like all the aforementioned companies above. The company is growing revenue at a rapid pace while sacrificing profits. This strategy works in the short term, however once the revenue growth starts to slow down, the stock crashes. This is exactly what I think will happen to Wayfair in the coming months. The stock is trading at a very high valuation due to its “stunning” revenue growth, but the company is still nowhere near reporting profits.
Given the similarities with other hyped stocks, I think Wayfair is my best short idea for 2016.
Mobileye was like Wayfair in many ways, but the company recently reported a positive EPS. The company is slowly turning profitable, but it still has a lot of downside, which is why I think investors should short the stock.
The primary reason why I think Mobileye’s stock will crash is its overvaluation. Mobileye is trading at 107x trailing earnings and has a P/S ratio of 43! Although the company’s growth is impressive, it will not grow into its current valuation in many years, let alone 2016. The company makes ADAS and the hype surrounding the automatic driving cars has pushed the stocks to unjustifiable heights, but the overvaluation will not last for too long.
The competition in the sector is increasing and Mobileye has no significant competitive advantage over its peers. Mobileye reminds me of 3D Systems. A stock is a growing market with no great competitive advantage. It will not be long before investors realize that Mobileye will not grow into its current valuation, which is why I think the stock is a short. In my opinion, the stock will be trading under $20 by the end of 2016, making it my second best short idea for the year.
Published on Dec 28, 2015By Ayush Singh