If there is one thing that Jim Cramer knows about the market right now, it is that investors despise value stocks and are going completely gaga for growth.
Lately, money managers have been willing to pay insane amounts of money for the most turbocharged growth names, even in unusual groups like semiconductor and tech hardware makers.
Three stocks have been a total battleground as high-growth companies that have high multiples: Ambarella, FitBit and GoPro.
So, given the fact that we are in an environment that favors the growth stocks, Cramer decided to take a closer look at these three stocks to decide whether they really are too expensive or it is time to start loading up on them.
"Remember, even if you hate these stocks, I need to you to understand how a stock gets from point A to point B, especially if point A is the base camp at Everest and point B is the summit," the "Mad Money" host said.
First up was GoPro, the maker of popular, high-quality action cameras that trades at 31 times next year's earnings estimates. That can seem absurdly expensive, given that the average stock on the S&P 500 sells for about 18 times earnings.
The bear case for GoPro is that many view it as a hardware retailer with a product that can eventually be replicated by the competition, which will ultimately dent its reputation.
The bull case for GoPro is more complicated, as many believe that GoPro has a lot more time before a competitor will be able to design such a good camera. Additionally, GoPro is building out a media ecosystem that allows millions of people to generate content and share it. That's a dream come true for a market that already loves Facebook and Google.
When Cramer looked at the numbers, he knew immediately why GoPro's valuation was justified. It grew revenues by 71 percent year-over-year, and its earnings more than tripled year-over-year. It released strong guidance for the year as well, as many of its snazzy new products will be in stores for the holidays.
"I know growth oriented money managers who would gladly pay as much as 60 times earnings for a company with these numbers. I think GoPro's a bargain at these levels," Cramer said.
Next was Ambarella, the chipmaker that is the brains inside of GoPro and many drones. Ambarella currently trades at 35 times earnings estimates over the next 12 months, and its stock has been all over the map as investors try to figure out if it has China exposure.
The bears think that Ambarella is linked to GoPro and has no control over its own growth. Cramer leaned more toward the bullish case, which thinks that Ambarella provides components for many different growth end markets, not limited to GoPro.
And just like GoPro, Cramer found that Ambarella's numbers justified its valuation. It delivered 73.5 percent y-o-y revenue growth and more than doubled earnings. Even at 35 times earnings, Cramer still thinks Ambarella is cheap.
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Then there is FitBit, the leading maker of wearable fitness trackers. And while it might seem pretty insane at 61 times next year's earnings estimates, Cramer actually thinks the estimates could turn out to be too conservative, which would make it less expensive.
The bears worry that the Apple Watch will eat into its business, but given the fact that it serves a totally different purpose from the Apple Watch at a cheaper price point, Cramer isn't concerned.
"I think FitBit's got a terrific ecosystem, and I bet their first quarter out of the gate will be a good one, which is why I think it's a buy into any weakness over the next two weeks going into their earnings report," Cramer said.
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