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4 Tech Stocks That Still Look Scary

Lately, tech stocks have lost some of their luster. Even top-tier operators have not been spared, such as Apple (AAPL).

Exit sign
Source: iStockphoto.com

So what’s going on? First of all, the recent spike in market volatility has been a big factor. Whenever this happens, tech stocks are usually more vulnerable since they tend to be riskier.

But the volatility may ultimately lead to a slowing of growth, such as in Europe and China. The crisis in Greece may spread and of course, the wide swings in the Chinese stock markets could have a negative impact consumer spending. All in all, these forces could result in lower demand for tech products.

What are some of the tech stocks that pose the most risk for investors? Well, here’s a look at four:

4 Tech Stocks To Sell: Workday (WDAY)

Workday NYSE:WDAYWorkday (WDAY) operates a cloud platform for ERP (enterprise resource planning services), with an emphasis on HR. Unfortunately, the company’s growth path has been muted lately. Consider that the guidance for the second quarter calls for revenues of $270 million to $274 million, which is about 45% to 47%. Yet the fiscal 2015 growth rate was a much more robust 68%.

So is this more of a temporary thing? Or is WDAY facing some longer-term challenges?

Well, the latter could be the case. According to Jefferies analyst John DiFucci, it looks like Oracle (ORCL) has been engaging in irrational pricing and discounting strategies to win business from Workday. Let’s face it, Oracle’s co-founder Larry Ellison really hates to lose at anything — he has a long history of putting up fierce fights.

In other words, there’s a good bet that he will not give up any time soon. And yes, this could weigh on Workday.

Despite all this, Wall Street is still valuing WDAY stock as if the hyper growth will continue for some time. After all, the price-to-sales multiple is a steep 17. So, if the quarterly results continue to lag, the stock could be vulnerable.

4 Tech Stocks To Sell: Twitter (TWTR)

TWTR twitter stock price twitterFacebook (FB) CEO and co-founder Mark Zuckerberg once had this to say about the early days of Twitter (TWTR): “[Twitter is] such as mess — it’s as if they drove a clown car into a gold mine and fell in.”

Interestingly enough, it seems that much hasn’t changed since, although the “gold mine” part may not be as applicable, as seen with the hugely disappointing earnings report for the first quarter.

Twitter whiffed on earnings and revenues – and the guidance was also awful. Then again, the company has continued to lag with user growth, which was up less than 5% on a sequential basis.

And of course, CEO Dick Costolo departed without a permanent replacement in sight.

The fact is that the Twitter service is still confusing for many users. How many people really understand features like hastags and retweets?

But there are various other services such as Instagram and SnapChat that are filling the void. Keep in mind that they are having no problems with user growth.

Something else: CEO transitions for once-hot-tech companies are usually dicey. Just look at the horrible examples at companies like Groupon (GRPN) and Zynga (ZNGA). These tech stocks have been some of the worst performers during the past couple years.

4 Tech Stocks To Sell: Box (BOX)

box inc-box-stock-185Box (BOX), which is a developer of cloud software for collaboration and file sharing, pulled off a strong IPO back in late January. The stock jumped by about 68% on the first day of trading.

But since then the performance has been choppy. In fact, the stock is now close to an all-time low.

The issue? It’s the deceleration in the growth rate. For the second quarter, the company forecasts a 34% increase in revenues. But the ramp was actually 74% last year! The decline has continued even though Box spends over 80% of its revenues on sales and marketing.

Then again, the company must fight against huge competitors, including Amazon (AMZN), Microsoft (MSFT), Dropbox and Google (GOOG, GOOGL).

Oh, and there is another problem for investors:  the lock-up period will expire for Box on July 22. This means that employees will be able to unload their shares.

In other words, it’s a good bet that there will be even more pressure on the stock price.

Actually, short sellers are thinking the same thing — a whopping 31% of the float is in short positions.

4 Tech Stocks To Sell #4: 500.com (WBAI)

500-com-wbai-stock-logo-185500.com (WBAI) is the top online sports lottery service provider in China. But in February, the company got some really bad news – that is, the Beijing authorities decided to suspend this type of business! The reason is that the government wants to implement new regulations.

According to the Q1 earnings report:

“As a result of the provincial sport lottery administration centers’ decision to temporarily suspend accepting online lottery orders, or the temporary suspension, 500.com’s transaction volume decreased significantly. The Company recorded operating loss for the first quarter of 2015 and is currently not generating any revenue due to the temporary suspension.”

Yikes!

Now it’s true that the new regulations could benefit 500.com (for example, they could make it tougher for rivals to move into the market). But it is far from clear when the Chinese government will make a decision. Then again, there may be more concerns right now, such as dealing with the wrenching volatility in the stock markets.

So given that 500.com cannot operate its core business, it’s probably best to avoid the stock for now.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/4-tech-stocks-still-look-scary-wday-box-wbai-twtr/.

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