SPECIAL REPORT The Top 7 Stocks for 2024

3 Terrible Tech Stocks With Inflated Valuations

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  • These three tech stocks are boasting inflated valuations that lack sound justification.
  • BILL Holdings (BILL): BILL’s slowing growth and lack of profitability are concerning. 
  • Monday.com (MNDY): MNDY faces steep competition from a number of larger, well-known work management tools.
  • Sprout Social (SPT): Consistently strong margins have not justified Sprout’s lack of bottom-line profitability.
overvalued tech stocks - 3 Terrible Tech Stocks With Inflated Valuations

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The Nasdaq has been on a roller coaster ride in 2023, reaching incredible highs and some frightening lows. As of today, the famous tech-heavy index is down 12% from its recent high. Overall, the index has gained more than 22% year-to-date, outperforming the S&P 500 and the Dow Jones Industrial Average. However, that also implies a number of tech stocks have become grossly overvalued and should be sold immediately. Below are three such overvalued tech stocks.

BILL Holdings (BILL)

The Bill.com logo in front of a building representing BILL stock.
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Small-to-medium-sized enterprises (SMEs) looking to create recurring revenue models have already probably heard of BILL Holdings (NYSE:BILL). This cloud-based platform helps to automate the billing and revenue management process for a number of businesses. The company also helps its customers with accounts receivables and accounts payables management. In particular, enterprises can use BILL’s platform to generate invoices, collect payments, recognize revenue and comply with accounting standards. As more and more companies embrace digital transformation, BILL has, in turn, enjoyed strong demand for its services with impressive annual revenue growth since 2019.

Unfortunately, BILL is already suffering from sluggish customer growth due to its historical focus on SMEs. Year-over-year growth for quarterly revenue in 2023 has fallen behind the triple-digit growth metrics the company reported in 2022. Moreover, despite slower growth, BILL happens to be still trading at an inflated valuation of 56.6x forward EBITDA. Unless growth picks up in the near term, it is hard to justify holding BILL for the time being.

Monday.com (MNDY)

The Monday.com (MNDY) logo is displayed on a laptop screen.
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Monday.com (NASDAQ:MNDY) is another cloud-based software company that offers a platform for managing projects, workflows, and teams. MNDY’s Work OS is a cloud-based visual work operating system consisting of modular components used to create software applications and work management tools. The software company has amassed a large and diverse customer base, spanning across various sectors and regions. However, the stock is also extremely expensive, trading at more than 132x forward earnings.

Furthermore, operating in a crowded and competitive space has not helped Monday.com’s prospects either. The software platform competes directly or indirectly with other work management tools, including those from Microsoft (NASDAQ:MSFT), Atlassian (NASDAQ:TEAM) and Asana (NYSE:ASAN), as well as smaller players such as Smartsheet (NYSE:SMAR) and Wrike. As revenue growth begins to slow dramatically in 2023, I believe it’s safe to say Monday.com is certainly overvalued at this point, and current investors should consider selling.

Sprout Social (SPT)

cloud computing stocks
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Sprout Social (NASDAQ:SPT) is a cloud-based software company that provides tools for social media management and analytics. As social media has enveloped both social interactions and commerce, Sprout Social has been able to cultivate a loyal and growing customer base, especially among small and medium-sized businesses that have increasingly leveraged those platforms to sell products and services.

Despite all of that, Sprout Social is yet to be profitable and thus trades at absurd valuation multiples. Moreover, while gross margins have historically averaged more than 75%, the social media software platform’s EBITDA margins have continued to waver in negative territory. Investors should demand significant margin expansion and improvements upon revenue growth before deciding to invest in Sprout.

On the date of publication, Tyrik Torres did not hold (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.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.


Article printed from InvestorPlace Media, https://investorplace.com/2023/10/3-terrible-tech-stocks-with-inflated-valuations/.

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