As the stock-market race enters the final laps for 2018, Abiomed Inc. is the best-performing stock in the Standard & Poor’s 500 Index.
The standings, as of November 2, 2018:
Abiomed Inc., up 105% Advanced Micro Devices, up 97% Fortinet Inc., up 66% Advance Auto Parts Inc., up 66% Chipotle Mexican Grill Inc., up 65%
If you own one of these, congratulations. If you don’t, don’t feel too bad. If you chose all your stocks randomly from within the S&P 500, and you held 20 stocks, your chance of hitting one of these was only about 20%. Your chance of getting all five? That was about one in 16.5 million.
Here’s what I think about each of these red-hot stocks.
Abiomed (NASDAQ:ABMD) makes devices that assist the heart in pumping, or replace the heart’s functions temporarily (during surgery or acute heart failure). The Danvers, Massachusetts, company has grown its revenue 40% a year, on average, the past four fiscal years.
Earnings have grown even faster. No wonder investors are in love with this stock. Analysts are too, awarding it ten “buy” ratings and only one “hold.”
I love what the company does, but I wouldn’t buy the stock. In case you missed my sermon on the past 1,000 Sundays, there is a difference between a good company and a good stock.
Just as the fastest horses in a thoroughbred race must wear the heaviest saddles, so the best-performing companies sell for a higher multiple of earnings per share than typical companies do.
Abiomed sells for 105 times the past four quarters’ earnings. The multiple for a typical stock at the moment is about 19. Good companies deserve to sell for a premium, but I believe this premium is excessive.
A close second is Advanced Micro Devices