United States equities markets are still broadly delivering outstanding returns for investors this year. The Standards and Practices (S&P) 500 is up more than 16% year-to-date, while the Nasdaq Composite has roared back from 2022 lows, returning investors almost 33% year-to-date. Of course, what has helped this leap in valuations for tech stocks has been largely due to recent achievements in generative AI. Nevertheless, even in a bull market like the one we’re currently experiencing, there happen to be losers. Inflation is not yet fully tamed, and global economic slowdown remains on the horizon, threatening a number of technology enterprises.
In these times, it is important for investors to be both vigilant and decisive. Below is a list of tech stocks investors should sell before they crash and burn.
Cyberark Software (CYBR)
Cyberark Software (NASDAQ:CYBR) is a cybersecurity software firm that provides “Privileged Access Management” for organizations that want to secure themselves against hackers and other security threats. Privileged access management refers to cybersecurity technology solutions designed to securely maintain and elevate access and permissions for users, accounts and systems within an organization. An enterprise can leverage such technologies from Cyberark to secure their cloud infrastructure and applications as well as to maintain confidentiality of vital data. This particular subset of the wider cybersecurity market was worth approximately $2.5 billion at the end of 2022, and market experts predict the industry grow to nearly $20 billion in value by 2030.
The cybersecurity company’s revenue growth struck double-digit territory in 2022 but before had been in the single digits. A lot of what helped to boost Cyberark’s growth is its shift to a recurring revenue model. Gross margins, however, have compressed and net income still remains in the red. Further, Cyberark’s valuation is astronomic. The company’s enterprise value is trading at 145.7x forward EBITDA. Thus, even if we account for future EBITDA generation, Cyberark is still overvalued. Additionally, Cyberark’s current valuation is not due to the company benefitting from this year’s bull market – CYBR’s shares have only returned almost 11% YTD, behind many other tech stocks. With the company due for an immense devaluation and experiencing lackluster share returns, current Cyberark shareholders are probably better of selling before their positions get burned.
Cisco Systems (CSCO)
Cisco Systems (NASDAQ:CSCO) designs networking and wireless products to enable connectivity within and between organizations. The company’s products helped form the internet the way in which we know and conceive of it today. Cisco’s products include “Secure Agile Networks,” which formulate the basic components of connectivity within any organization, such as switches and routers and “End-to-End Security,” which is a cloud-based cybersecurity offering that keeps company networks secure. In 2022, The communications equipment giant generated $51 billion in revenue and $11.8 billion in net income, representing a net margin of almost 23%.
Unfortunately, once a true darling of Silicon Valley in the 1990s, Cisco Systems has trotted down the path of slow growth and a lack of genuine innovation. A research paper written by economists writing for the Institute of New Economic Thinking accused the company of abandoning innovative products for maximizing shareholder returns through expensive share buyback schemes. These accusations are also based on Cisco’s relatively low research and development expenses. The paper also noted that the company’s over-reliance on third-party manufacturers allowed competitors, like Ericsson (NASDAQ:ERIC), Nokia (NYSE:NOK) and Huawei, who had in-house manufacturing teams, to get ahead in high-end communications technologies such as 5G.
Cisco’s sluggish, single-digit revenue growth throughout the past decade just re-enforces their argument. The company’s shares are up slightly above 11% year-to-date, but investors in for growth-inducing communications innovation should look elsewhere.This is definitely worthy of our list of low-performing tech stocks.
Synaptics (SYNA)
Synaptics (NASDAQ:SYNA) is a global developer and supplier of “fabless” mixed signal semiconductor solutions. Being “fabless” simply means the company does not do its own in-house manufacturing, but rather outsources these tasks to third parties. Synaptics’ products have number of valuable applications in the automotive, internet of things (IoT) and consumer electronics industries. If we think about the IoT market, which contributed to 63% of sales in 2022, the company provides wireless connectivity, system-on-a-chip (SoC) and integrated circuits products. The wireless products are used to enable Wi-Fi and Bluetooth, while the SoCs power a range of voice and audio devices, such as smart speakers.
Similar to the businesses above, Synaptics suffers from inconsistent revenue growth and profitability metrics. Last year. the company closed its fiscal year 2022 (which ends in June) with revenues growth figures encroaching 30% YoY, but its recent fiscal year 2023 earnings print showed an overall contraction in annual revenue growth of 22%. The company cited a lack of demand for products targeted for its PC and mobile end-market. Synaptics’ financial performance inconsistencies and the overall macro-economic environment leave little for shareholders to hope for. Shares in the tech stock are currently down almost 3% for the year.
On the date of publication, Tyrik Torres 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.
