1-Star Stocks Poised to Plunge: Valhi?

Before you go, we thought you'd like these...
Before you go close icon

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, chemicals producer and waste management service provider Valhi (NYS: VHI) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Valhi's business and see what CAPS investors are saying about the stock right now.

Valhifacts

Headquarters (Founded)Dallas (1932)
Market Cap$6.76 billion
IndustrySpecialty chemicals
Trailing-12-Month Revenue$1.85 billion
ManagementCEO Steven Watson (since 2002)
CFO Bobby O'Brien (since 2002)
Return on Equity (Average, Past 3 Years)7.9%
Cash/Debt$164.7 million / $904.7 million
Dividend Yield0.8%
CompetitorsDuPont (NYS: DD)
Huntsman (NYS: HUN)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 35% of the 91 members who have rated Valhi believe the stock will underperform the S&P 500 going forward. These bears include davidm9999 and Jeffrey2012.

Late last month, davidm9999 touched on the stock's seemingly unsustainable valuation: "[Valhi's] P/E is reminiscent of other bubble companies -- like [Netflix], [Research In Motion], and [Green Mountain Coffee]. Look to see it fall hard in the coming year."

In fact, Valhi currently sports a lofty P/E of 56. That represents a clear premium to other chemical plays like Dow Chemical (NYS: DOW) (12), DuPont (13), and Huntsman (10).

CAPS member Jeffrey2012 elaborates on the bear case:

This is an overvalued holding company that is having way too much of a rosy picture in terms of future prospects. ...

I seriously believe that the performance crowd has started to chase this to the moon since they see [Chairman Harold Simmons] buying so many of the shares and it's consistently gone up. But the run up has been way over done and a serious risk of overheating. I fear that many people don't quite understand all of their holdings and just see that it's gone up so it must continue going up. ...

This is definitely an interesting company and if it could drop down to a more reasonable price point then it would become a more rewarding investment going forward.

What do you think about Valhi, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

At the time this article was published Interested in another easy way to track Valhi? Add it to your watchlist.Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Netflix and Green Mountain, as well as creating a lurking gator position in Green Mountain. Try any of our Foolish newsletter services free for 30 days.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners