Michael Santoli

Which CEO Will Be Next to Talk Down His Own Stock?

Michael Santoli

Some of the cool-kid CEOs have taken to talking down their companies’ frothy-looking stocks. Is this about to become a trend, with other business honchos attempting to tamp down speculative momentum for stocks riding high on investor excitement?

View gallery


Reed Hastings of Netflix Inc. (NFLX) and Elon Musk at Tesla Motors Inc. (TSLA) each recently sprinkled some verbal cold water on true-believer investors who've propelled their stocks up 256% and 379%, respectively, this year.

In his quarterly investor letter accompanying the video-streaming company’s strong results last week, Hastings gently cautioned on the shares, trading at 100-times 2014 forecast profits: “In calendar year 2003 we were the highest-performing stock on Nasdaq. We had solid results compounded by momentum-investor-fueled euphoria. Some of the euphoria today feels like 2003.”

The stock opened strong the next day, but has since declined close to 10% from before the report, after it was disclosed that investor Carl Icahn had taken profits on more than half of his 10% stake.

Musk, the founder of Tesla and a cult-favorite tech entrepreneur, on Friday stated about TSLA shares, also near 100-times forward earnings, what to some might sound obvious: “I think that we have quite a high valuation, and a higher valuation than we have any right to deserve.” This was at least the second time Musk has noted that extremely high expectations for its electric-car company are now priced into the stock, which has lately backed off 15% from its Sept. 30 high.

While admittedly more a story of paired anecdotes than a clear pattern, the cautionary words from Hastings and Musk reflect a market that has over-rewarded a handful of anointed stocks perceived as industry-transforming growth leaders with captivating innovation stories.

Nick Colas, strategist at institutional broker ConvergEx Group, offers: “Any CEO who expresses caution about their current stock price deserves a lot of credit for honesty and a clear-eyed view that stock market hype isn’t always your friend as the leader of a public company. Of course, a CEO who does this probably has the luxury of a stock with an outsized valuation, where any near-term fluctuations don’t undermine the market’s basic confidence in the story.”

From the limited examples so far, we can sketch a profile of the sort of CEO who might next try to sober up his or her investors after a huge run higher in a company’s shares:

They would be founder/owner CEOs, in from the beginning — or very early on — on a fabulously successful concept with grand long-term ambitions for remaking large expanses of the economy.

Their recent corporate results and stock performance should be stellar, giving them ample cover to sound a prudent note — almost as a service to current and would-be investors.

Their reputations as visionary business heroes should be rather secure, enabling them to step beyond the standard boosterism surrounding their share price. One can infer a certain implicit boastfulness, in fact, in a CEO who acts as teller of straight truths to acknowledge possible excessive optimism in his stock. This strikes a stark, convenient contrast with the vast majority of CEOs now working to squeeze out decent short-term profits while buying back their shares aggressively, often regardless of how expensive they appear.

So if this is to become a trend – and of course it very well might not — where might we find the next CEO to kick some dirt in recent stock buyers’ direction? Here are a few candidates who fit the rough profile described above:

Jeff Bezos, Amazon.com Inc. (AMZN)

This is a fairly easy call, given that from before Amazon went public in 1997, Bezos has preached only the longest-term corporate objectives, stressing domination of e-commerce over decades and disdaining the need even for near-term profits. Yet with his stock up 20% in 20 days, to a new all-time high and at 50-times last year’s cash flow, this could be a decent moment for him to "under-promise" regarding immediate gratification for today’s new stock buyers.

Reid Hoffman (co-founder/executive chairman) or Jeff Weiner (CEO), LinkedIn Corp. (LNKD)

Weiner was asked as far back as 2011, not long after the professional social network went public, about its daunting valuation. He demurred, saying it was the market’s job to value his business and his to realize its destiny as the dominant platform for connecting people and businesses. The stock is up 113% this year and fetches a Netflix-ian 100-times expected profits, double Facebook Inc.’s (FB) multiple. Perhaps better than an acknowledgement of frothiness in its stock (if they even see it to be there) would be a secondary offering to widen its thin float. Linkedin reports its quarterly numbers Tuesday after the bell.

View gallery


Steven Ells, Chipotle Mexican Grill Inc. (CMG)

While not quite at a social-media stock valuation, shares of the fast-casual dining chain are rich by the standards of the restaurant industry, at 40-times next year’s earnings. They are up 75% this year and 20% since its Oct. 17 earnings report. Ells’s advocacy for mindful eating, focused on local and sustainable food sources, and his own humble beginnings as a struggling chef not long ago, would seem to make him a decent bet to express some caution on the run his stock has enjoyed – if asked.

Howard Schultz, Starbucks Corp. (SBUX)

Schultz’s run as a founder returning as CEO to save his creation is exceeded only by that of Steve Jobs. He’s an unmatched evangelist for privileging brand quality and deep connection with customers over short-term results. The market has never given him more credit for this vision, with the $60 billion-market-value company now trading at the upper fringe of its five-year P/E range. The stock, just below its all-time peak of $80, has surged more than 500% the past five years. Schultz himself sold 1 million shares at just above $57 in March. While not a red flag for the stock, given his personal holdings remain quite high, his sale suggests he didn’t judge the stock to be cheap at prices 25% lower. Perhaps he'll get such a question after reporting quarterly numbers on Wednesday.


View Comments (8)

Recommended for You

  • Detroit retirees back pension cuts by a landslide

    DETROIT (AP) — A year after filing for bankruptcy, Detroit is building momentum to get out, especially after workers and retirees voted in favor of major pension changes just a few weeks before a judge holds a crucial trial that could end the largest public filing in U.S. history.

    Associated Press
  • Court ruling may 'free' millions from Obamacare

    The intellectual godfather of a major Obamacare court challenge says it could "free" tens of millions of people from the law's mandates.

  • Often Overlooked Method to Pay Off Mortgage

    If you own a home and pay for a mortgage, you could reduce your payments by as much as $3,000 a year. Here is how it works.

  • Goldman Sachs: Here Are 25 Small-Cap Stocks to Buy

    While Goldman Sachs is cautious on small-cap stocks due to valuation concerns, the firm still finds some pockets of opportunity among individual names within the group.

    The Wall Street Journal
  • Herbalife Plummets

    Herbalife shares were down as much as 11%...

    Business Insider
  • JetBlue pilot among 6 arrested in Boston drug bust

    BOSTON (AP) — A JetBlue pilot from Florida is among six people arrested by Boston police over the weekend in an investigation of drug dealing incidents near the Boston Common.

    Associated Press
  • Bodies from downed jet piled in boxcars in Ukraine

    TOREZ, Ukraine (AP) — Pro-Moscow rebels piled nearly 200 bodies from the downed Malaysian jetliner into four refrigerated boxcars Sunday in eastern Ukraine, and cranes at the crash scene moved big chunks of the Boeing 777, drawing condemnation from Western leaders that the rebels were tampering…

    Associated Press
  • 7 Things You Didn't Know About Paying Off Student Loans

    There are a number of ways to pay down your loans. Here are a few things -- good and bad -- about the process that you might not have known.

  • How to avoid the biggest 401(k) mistakes

    Avoiding these four common, but serious, 401(k) mistakes can mean the difference between a great retirement and a shaky one.

  • Millions "Rattled" by New Site Releasing Records!

    Your past is now easily searchable online! A new site has made browsing the public records of anyone as easy as entering a name and choosing a state!

    AdChoicesInstant CheckmateSponsored
  • China's rich look abroad as home prices fall, others stay put

    By Xiaoyi Shao and Koh Gui Qing BEIJING (Reuters) - Rattled by falling home prices, some of the wealthiest Chinese are paring their property investments and turning to private equity or overseas holiday homes, a sign of fading hopes that the once red-hot market can bounce back any time soon. "There…

  • Play

    How to Build Your Own Annuity

    Instead of paying an insurance company, financial advisor Allan Roth recommends building your own "indexed annuity" that protects principal while giving market upside.

    WSJ Live
  • What a Marijuana ETF Would Look Like

    The changes taking place around marijuana for medical use and for recreational use are the biggest in almost everyone’s lifetime. There are quite literally billions of dollars up for grabs for those who ...

    24/7 Wall St.
  • Philippine sect opens 'world's largest indoor arena'

    Philippine President Benigno Aquino presided over the opening on Monday of what is billed as the world's largest indoor stadium, erected by a politically-influential religious sect. The $175-million Philippine Arena, which can seat 55,000 people, was hailed as a showcase that will serve as a major…

  • 'Apes' outmuscles 'The Purge' at box office

    NEW YORK (AP) — The summer box office continued to lack mojo, as the R-rated "Sex Tape" failed to turn on moviegoers over a weekend where "Dawn of the Planet of the Apes" maintained its rule.

    Associated Press
  • Play

    U.S. Stocks Open Lower

    U.S. stocks kicked off the week in a decline, as investors paused following last week's run to record highs. MarketWatch's Victor Reklaitis joins Paul Vigna on the News Hub with the details, plus which stocks to keep an eye on. Photo: Getty

    WSJ Live
  • Dental Implants: What You Should Know

    Thinking of getting dental implants? There are critical things you should know before going under the knife for the perfect smile.

  • What's Wrong With General Electric?

    Shares of General Electric (GE) fell 0.6% on Friday, despite what would seem to be good earnings news. Morgan Stanley's Nigel Coe and team explain why: Without a shadow of doubt, the number one question on our desk following General Electric's earnings was why the stock was so weak following…

  • Top Analyst Upgrades and Downgrades: Apple, ARM, DaVita, GE, GoPro, Itron and Many More

    These are the top analyst upgrades, downgrades and initiations from Wall Street firms on Monday, July 21, 2014. They include Apple, ARM Holdings, DaVita Healthcare, General Electric, GoPro and Itron.

    24/7 Wall St.
  • Everyone Loves Apple Once Again

    Apple reports earnings on Tuesday, July 22. A...

    Business Insider
  • Don’t Ignore Janet Yellen’s Stock Market Warnings

    Janet Yellen is taking a lot of flak for speaking her mind. Last week, the Federal Reserve released a biannual policy report just as Yellen, the Fed’s chair, began testifying to Congress on the state of the U.S. economic recovery, the outlook for inflation and what’s happening in financial markets…

    The Fiscal Times
  • Beef pollutes more than pork, poultry, study says

    WASHINGTON (AP) — Raising beef for the American dinner table does far more damage to the environment than producing pork, poultry, eggs or dairy, a new study says.

    Associated Press
  • 3 sectors to buy as stocks sell off

    Jack Ablin of BMO Private Bank gives us his top 3 picks to own right now

    Yahoo Finance
  • Apply for Student Loan Forgiveness

    The biggest change to student loans in decades. Call (866) 971-5722 now to learn more.

    AdChoicesAcademic Loan ReliefSponsored