A lot of people may have heard experts saying “you should buy that stock” or “avoid this stock since it has been trading on the negative sentiment”, but the truth is that it's not always the case. When the shares of a stock are overbought, the price of the share tends to bounce back to a lower price. This means buying shares isn't the only option investors should be aware of. Sometimes selling overbought stocks can be as profitable as buying good stocks.
Renren Inc. (RENN)
The shares of Renren Inc. have traded at $7.15 with a 52-week range of $6.13 – $24.00. Its earnings per share decreased by -$0.85. Its total cash flows seem to be at a negative, although it has a price-book of 2.29 times. Its net income for the previous year was -$65.36 million as the profit margin was downgraded by -65.83%. This indicates a negative sentiment for the company as it is currently overbought.
Sina Corporation (SINA) could be at an overbought level similarly to its competitor Renren. Sina Corporation had earnings per share of -$0.70 and it downgraded earnings growth by -60.50% this year compared to the last year. It has a price-book of 4.98 times.
Both of these stocks could have been overbought, which may indicate a downtrend in the future. For instance, if the economy continues to corrupt it may even push the price down further.
Research In Motion Limited (RIMM)
Research In Motion Limited has a market capital of $15.69 billion. It generated earnings per share of $6.30 with the price-earnings of 4.78 times. Its current price is $30.12 , with a 52-week range of $21.60 - $70.54. Its operating margin is 21.76% while the return on the equity is 37.95%. The overall positive statistics pushed the price of the share up while a price-book is also at a high ratio of 1.73 times. The earnings growth decreased by 9.60%.
At the same time, Nokia Corporation (NOK) has a price-book of 1.39 times. This is lower than Research In Motion Limited (RIMM). On the other hand, the price-earnings is 13.35 times, which is higher.
Research In Motion Limited seems to be overbought, while offering shares with a cheaper price. This may result in a swing back from its resistance level which may cause the price of the share to go down.
Sirius XM Radio Inc. (SIRI)
Sirius XM Radio Inc. has a market capital of $6.44 billion. It trades at $1.72 with a 52-week range of $0.99 – $2.44. Its current price-earnings is 41.95 times and the earnings per share is $0.04. It's trading at an overbought level with a price-book of 13.33 times. The stock seems to be expensive although its demand is also high.
One of its competitors, Cumulus Media Inc. (CMLS) has a price-earnings of 3.13 times and it generated earnings of $0.81 per share. This company has decreased the earnings growth rate by -89.10% and the revenue growth rate by -0.80%.
The Sirius XM Radio Inc. may have too much demand which causes the price of the stock to reach its resistance level. This may cause a short retracement before it resumes its trend. Selling this stock may be good for day traders.
SanDisk Corporation (SNDK)
A stock of SanDisk Corporation trades at $34.94 within a 52-week range of $32.24 – $53.61. It has a total market capital of 8.36 billion. It has generated $5.30 per share for the earnings. The current price-earnings is 6.59 times and the price-book is 1.36 times. The earnings growth rate of the company has decreased by -3.70% this year, but its revenue has grown by 16.60%. Nevertheless, it has an estimated debt of $1.76 billion. The debt it owns may push the price of this stock once again.
Sony Corporation (SNE) has been trading down with the earnings per share of -$3.90. It had a negative net income of -$3.91 billion and the revenue growth has downgraded by -10.00%. It has a negative return on the equity of -8.47%, which may indicate that the company's sales have dropped.
SanDisk is still trading at a high price although it owns a debt of $1.76 billion. Unlike Sony Corporation, it has already been trading at its low. Since its competitor Sony has been going downtrend continuously, it is possible that a stock like SanDisk may reverse and follow the trend of Sony Corporation.
Riverbed Technology, Inc. (RVBD)
Riverbed Technology, Inc. (RVBD) has a market capital of $3.60 billion. It has a 52-week range of $19.93 – $44.70 with a current price traded at $23.18 per share. It has generated earnings per share of $0.32 with a price-earnings of 73.35 times. The current price-book ratio is 5.71 times. This could mean that the stock is currently trading near its high.
One of its competitors is F5 Network. Inc. (FFIV), which has a price-earnings of 28.07 times and a price-book of 5.48 times. This could mean it's currently trading at a cheaper price than the Riverbed Technology, Inc. (RVBD) and is not as overbought as Riverbed. There seems to be more demand for Riverbed, and the price-book ratio seems to be too high for both of these stocks.
We think that the market will bounce back lower since there seem to be more buyers than sellers. Once the stock has bounced back giving a strong retracement level, it may reverse to a new trend and continuously trend downwards.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.