Up until last year, investing in growth stocks appeared to be the golden ticket to success. However, given the current volatility and unpredictable nature of the stock market, investors should think twice about investing in growth stocks. It is more sensible to take a closer look at the growth stocks to sell, as the risks far outweigh the potential rewards among this higher-risk grouping of equities.
Growth stocks have been the darlings of the stock market in recent years, providing exceptional returns relative to their value counterparts. However, this year’s bear market has led to a monumental sell-off in growth and speculative stocks. Adverse economic conditions have also led to sharp declines in earnings for most companies. Thus, given this starkly negative investor sentiment, it might be wise to reassess growth-oriented portfolios before these losses extend too far.
With that said, here are seven growth stocks to sell for investors looking to maximize their upside potential in the near- to medium-term.
|ZM||Zoom Video Communications||$71.47|
First on this list of growth stocks to sell is a household name for most investors. Netflix (NASDAQ:NFLX) has been an incredible success story for years, but that momentum hit a screeching halt earlier this year when the streaming giant announced its first-ever subscriber count drop. The news shocked investors, as NFLX stock had been the pick of many high-growth investors in a sector that the company practically pioneered.
In the first two quarters of the year, Netflix reported a cumulative loss of 1.2 million subscribers. Its third-quarter performance was encouraging, boosting the streaming giant’s performance with 2.4 million subscriptions. However, much of this can be attributed to its hit crime series, Monster: The Jeffrey Dahmer Story. The company has increasingly relied on one-off hits to create engagement and attract subscribers. Moreover, Netflix faces stiff competition from other companies investing millions in producing new content and creating brand equity, hurting Netflix’s chances of becoming profitable over the long-term.
Metaverse gaming giant Roblox (NYSE:RBLX) was an absolute sensation during the pandemic. This platform’s popularity soared when most people were cooped up in their homes with a shortage of entertainment options. However, recent results have shown that its growth was mostly unsustainable.
The news surrounding Roblox is discouraging. Revenue peaked last year, at a 140% growth clip for the first quarter last year. However, in Roblox’s third quarter this year, the company reported just 10% growth from the prior-year period. Unsurprisingly, the platform’s metrics have taken a hit across the board.
Moreover, like other pandemic darlings, Roblox isn’t profitable. It lost a hefty $300 million in operating income in the third quarter alone. Thus, this is a company without a clear pathway toward profitability, which raises some pertinent questions about whether it can turn things around to regain its former glory.
During the pandemic years, Vroom (NASDAQ:VRM) saw extraordinary growth in its e-commerce platform for selling used vehicles. Many buyers found Vroom more convenient and cost-efficient than buying new cars off the lot. Moreover, shortages of used vehicles also helped the company’s top line to soar to new heights. However, in the past few quarters, its results have diminished significantly with the loosening of restrictions and a significant drop in supply.
With its current business model and strategy, it is no surprise that Vroom has been struggling to become profitable. The company’s inherently low gross profit from a used car transaction complicate its path to profitability. Unless Vroom takes drastic steps to limit its operational expenses and revamp its business model, its stock price will languish for some time, and its long-term success will remain uncertain. Neither investors nor customers can feel secure about Vroom’s current economic position.
For those worried about what’s going on in the crypto world, Coinbase (NASDAQ:COIN) is certainly among the growth stocks to sell right now. COIN stock recently took a steep nose-dive, mostly in response to the FTX debacle. Following the bankruptcy of once-dominant FTX, it’s clear that increased regulatory scrutiny is coming, which should lead to higher compliance costs for Coinbase. What makes this even more troubling are the strong similarities between Coinbase and FTX, which means contagion risk is amplified for shareholders of COIN stock right now.
The harsh reality of the crypto industry has been laid bare for all to see. As fear and uncertainty continue to linger amongst investors, many exchanges have been forced to contend with heavy losses. Coinbase is a prime example, as its user base has decreased, and third-quarter reports have revealed an overwhelming loss of $545 million. Even more concerning are issues about marketplace integrity, which will take a substantial toll on the sector as a whole. Hence, COIN stock is a remarkably risky investment in this current investing environment.
As investors sought out safe havens during the height of the pandemic, Clorox (NYSE:CLX) was an obvious choice. People flocked to its products to sanitize their homes and businesses, leading to strong revenue and earnings growth. With the pandemic firmly in the rear-view mirror and newfound deplorable economic conditions taking hold, things have turned for the worse.
Though the firm has done relatively well in maintaining sales growth, it is battling intense inflationary pressures that have significantly weighed down its bottom line. The resulting downtrend in margins has placed the company below its sector average, illustrating its battle with a lack of pricing power. These inflationary pressures significantly affect its labor and logistics costs, which calls into question Clorox’s near-term positioning. Its stock, however, still trades at a lofty valuation, at almost 29-times forward cash flow estimates.
Carvana (NYSE:CVNA) initially looked promising for car buyers wishing to avoid the traditional route of navigating auto sales departments and other dealerships. However, with pandemic tailwinds receding, Carvana’s business and its stock price have taken a turn for the worse.
Carvana’s prospects do not appear encouraging, especially after its latest earnings report showed steep drops in both top and bottom line figures. Advertising, compensation, and benefits remain Carvana’s biggest expenses, with no prospects of waning. Additionally, there’s the pesky fact that used vehicle prices are declining while auto loan rates are increasing, putting more pressure on buyers as well as Caravan’s bottom line.
On top of that, net interest expenses for the company’s debt load have risen by over 200%, as Carvana burns through cash at an accelerated pace. Carvana is struggling to find a path to positive EBITDA, and is unlikely to do so for the foreseeable future.
Zoom Video Communications (ZM)
Rounding out this list of growth stocks to sell is Zoom Video Communications (NASDAQ:ZM), a communications platform that saw its user base grow in an incredibly way during the pandemic. However, with the pandemic fading away, its revenues have normalized while the company faces stiff competition from other video platforms. Its customer base has been declining due to waning demand, signaling that without an innovative approach, Zoom will struggle to retain its popularity going forward.
Zoom is finding itself quickly losing its foothold in the video communications market. Without any exclusive features or services to retain customers, each quarter provides a shrinking user base. This shrinkage has been materializing at an alarming rate. The company’s revenues have increased in the past couple of quarters by just single-digit margins, a far cry from the triple-digit growth it was generating in 2021. Thus, unless the company finds novel ways to grow its revenue base, ZM stock is unlikely to see much improvement in its fortunes anytime soon.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.