“It’s only when the tide goes out that you learn who has been swimming naked.” That Warren Buffett quite is about the danger of investing in companies during bull markets. Some companies that are flying high today may have some problems that are being overlooked.
That trend could easily reverse. So with markets still near all-time highs, investors may want to look for companies that have clean financial books and are in good shape.
One such company is Autodesk (ADSK). Shares have rallied following an investigation into the company’s accounting. Autodesk reports there will be no need to restate or adjust past financial results.
The company even replaced its CFO, which should assure markets that there will not be any appearance of further accounting issues anytime soon.
The initial news of accounting trouble sent shares lower. The design software company is slightly down over the past year, as revenues have been flat.
But shares trade at 25 times earnings, and the company’s preliminary earnings suggest that Autodesk is growing at 20.6% year-over-year.
Action to take: Investors may like shares here, as there is likely more upside in the months ahead following the resolution of this accounting concern.
For traders, the August $230 calls, last trading for about $7.75, could see mid-double-digit returns on a further rally in the weeks ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.