GO
Loading...

Michael Kors and another stock Cramer wouldn’t buy

In these cases, "It's better to be safe, and a seller, than sorry and a buyer," Cramer said.

The "Mad Money" host was referring to the stocks of Michael Kors and Workday; both of which reported earnings this week. If you were to just look at the headline results, you may be inclined to buy. Cramer, however, always digs down.




Michael Kors
Getty Images
Michael Kors

Michael Kors

In the case of Michael Kors, Cramer understands that an investor may be surprised by his skepticism.

Net income for the three months ended March 29 and rose to $161 million, or 78 cents per share, from $101.1 million, or 50 cents per share last year. Analysts expected 68 cents per share, according to FactSet.

Revenue rose 54 percent to $918 million, from $597.2 million. Analysts expected $821.2 million. Revenue in stores open at least one year, a key retail metric, rose 26.2 percent.

Those results seem outstanding. And Cramer thinks they are, however, relative to the multiple, they're also a problem.

"A retailer that sells at almost 30 times earnings, even with a spectacular growth rate, is subject to microscopic examination," Cramer explained.

And when put under the microscope, Michael Kors has a problem. Results show a slight uptick in inventory.

"Short-sellers seized on the uptick in inventory. I didn't want to believe it at first. I feel that any merchandiser putting up those numbers should be rewarded. However, there can be no chinks with high multiple stocks."

And now that the stock is struggling after strong results, Cramer fears more and more sellers will step forward, if only to book profits.

"I know that Kors is decimating the competition. But that kind of growth has been, historically, too difficult to maintain. With a stock at or near all-time highs there's cause for concern, here."

Workday

Again, it may seem counter-intuitive to take a negative view on Workday stock.

The enterprise software company posted results that easily trumped analyst estimates. Also Workday's revenue outlook for the current quarter exceeded Wall Street views.

Headline results appear fantastic. "Workday is fast growing, winning huge accounts including Hewlett-Packard, Lifetime Fitness and Netflix. The growth here is an awesome 74 percent."

However, beneath the surface Cramer has spotted developments that Wall Street probably won't like. "The company only reported break-even operating cash flow."

Also Cramer said, "Even though Workday dismissed the notion of SAP and Oracle really coming on strong I have to wonder if they have a choice. And when those two giants decide to squeeze Workday won't it impact the growth?"

Also looking at Workday stock relative to peers, Cramer believes it's only a matter of time before rivals go public, in turn, attracting investment dollars that would otherwise go to Workday.

Therefore, like Kors, Cramer thinks the path of least resistance for Workday is probably lower.

------------------------------------------------------------
Read more from Mad Money with Jim Cramer
Cramer: Magnificent bull nearing end
Cramer's 4 favorite banks
Bet on IPO or sector veteran?
------------------------------------------------------------

Now, that's not to say Cramer doesn't like these companies. He believes both Michael Kors and Workday are well-run firms that are leveraging opportunity extremely well.

The issue here is the premium that both stocks already command and whether it can increase. After results outlined above, "I believe each company is subject to a crossfire of sellers and that means the gains are going to be tough from here. Effectively both stocks are now battlegrounds, and I content that battleground stocks are no place for long-term investors."

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

Symbol
Price
 
Change
%Change
MIKE KORS HO
---
WDAY
---
SAP
---
ORCL
---

Featured

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.