This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines cover the gamut, with downgrades hitting French game maker GameLoft (GLOFY) and Brazilian plane manufacturer Embraer (ERJ) . Meanwhile, one company -- Twitter, which isn't even tradable yet -- nonetheless receives a prospective buy rating. Let's start with that one.
Tweet: "Buy"
Like I said, while widely reported to bear the ticker symbol TWTR, Twitter shares are not yet public and cannot yet be invested in. But that didn't keep analysts at CRT Capital from jumping the gun this morning by urging investors to go ahead and buy the stock anyway. Likewise, we've heard in recent weeks that analysts at Topeka Capital, Sterne Agee, and others -- five analysts in all -- have begun chiming in on Twitter's prospects, with most advising investors to buy the stock.
Why?
Well, as USA Today reported today, Twitter has been making the case for buying its stock lately. According to the newspaper, the company is telling people that it expects to double revenue from current levels by 2015, raking in $1.24 billion, and expects to transform $200 million of that into earnings before interest, taxes, depreciation, and amortization, or EBITDA.
That all sounds pretty good, but let's put it in context. Current expectations for the stock's valuation, at an anticipated $24 IPO price, suggest the company could exit the gate at a $17 billion market capitalization. Assuming the EBITDA numbers are right, this would work out to an 85 times EBITDA multiple on the stock -- or a valuation more than twice that of Facebook , and more than five times that of Google .
That valuation seems a bit excessive to me. Luckily for you, so far there's no risk of overpaying for the stock, at least until the IPO actually happens.
So let's move on now to the stocks that you can buy, but that Wall Street says you shouldn't. We'll begin with:
GameLoft pwned by analyst
Paris-based GameLoft may be one of the biggest gaming companies you've never heard of. The maker of downloadable games for mobile devices, tablets, PCs, and gaming consoles commands a nearly $1 billion market capitalization ($873.5 million, to be precise). It just finished reporting "record" third-quarter revenue of $83.1 million, up 11% year over year, with game sales for smartphones and tablets in particular (69% of the firm's business) rocketing 31%.
Yet over at Benchmark, analysts just yanked their buy rating and downgraded GameLoft to neutral. Why?