I'm not a buyer of Domino's Pizza Enterprises Ltd. (ASX: DMP), SEEK Limited (ASX: SEK) and Carsales.Com Ltd (ASX: CAR) shares today.
Domino's!
SEEK!
Carsales!
They are like the best stocks … eva!
Domino's, SEEK and Carsales Share Prices
Indeed, looking at that chart you would think I am crazy to avoid those shares, right! Just look at how well they have done.
Let me explain…
Firstly, Domino's. I've covered it before but it is worth mentioning that I think it is a great business. Moreover, it is expected to keep chalking up good profit growth in the next three years. The problem is everyone knows that — it is expected to do great things. That means, investors have priced its shares for that growth already. So if it doesn't come, shares could fall hard. It could work the other way, too. For example, if they grow profits quicker than expected shares could rally. But that risk-reward tradeoff is not worth it, in my opinion.
Carsales and SEEK I've lumped together before. I think their franchises will come under more pressure in 2017 and 2018 than at any time in the past. They could innovate their way out of the competition that is knocking on their door. In that sense, I think SEEK is better placed for such challenges. But we'll have to wait and see. And I'll be watching from the sidelines.
Buy, hold or sell
There is a difference between avoidance and a 'sell' rating. Basically, a sell should imply your money will make more money elsewhere. Avoidance just means that you believe the odds are not in your favour to buy.
I think Domino's has high expectations placed upon it and should be avoided.
SEEK and Carsales.Com shares are not nearly as expensive. But I question their ability to compete over the next three to five years and how their business models may be affected by the competition.
