While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.
What: Shares of Rocket Fuel Inc sank 2% this morning after BMO Capital downgraded the digital advertising technologist from outperform to market perform.
So what: Along with the downgrade, analyst Dan Salmon planted a price target of $50 on the stock, representing 25% worth of downside to yesterday's close. While momentum traders might be attracted to Rocket Fuel's red-hot stock price of late, Salmon is concerned the valuation has surged too far, too fast.
Now what: BMO remains bullish on Rocket Fuel's growth prospects, but believes the current risk/reward trade-off is unattractive. "[A]fter yesterday's +13% move, the stock has busted through its recent trading range that has seen it move from the high $30s in mid-November to over $71 intraday today," noted Salmon. "At these levels, we can no longer advise investors to put a new dollar to work in the stock without an incremental leg to our thesis."
When you couple that massive run-up with Rocket Fuel's still-unprofitable and speculative nature, it's tough to disagree with BMO's cautious stance.
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The article Why Rocket Fuel Inc. Might Pull Back originally appeared on Fool.com.Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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