The stock market is a highly subjective place that is also governed by analytical objectivity. It’s easy to calculate a price-to-earnings ratio because it’s an objective number. It’s sometimes difficult to apply subjective determinations to that number. In other words, it’s easy to label a given stock as overvalued only to see its price remain strong. That’s investing in a nutshell.
The shares that I’m about to discuss here all have various objective figures and ratios that suggest they are indeed overvalued. My subjective determination is that they all ought to be sold for that reason and more. Whether they remain in the near term, I ultimately believe these shares are going to harm investors. With that in mind, let’s look at some of the overvalued stocks to sell:
Overvalued Stocks to Sell: GameStop (GME)
GameStop failed to adapt to digitization and e-commerce trends that characterize the gaming sector. Instead, the company chose to rely on disc-based games as the driver of its business. In short, it failed to modernize, costing the company dearly.
Insert Ryan Cohen, former CEO of pet company Chewy (NYSE:CHWY). Cohen used his powerful voice to enact the stock market equivalent of a coup while championing GameStop’s modernization. Those efforts made games stop a meme stock favorite with its fans fully behind Cohen and a supposed turnaround.
It’s a good story, but it just hasn’t worked out. The company has cycled through multiple high-powered e-commerce executives and various efforts that haven’t worked. Now Cohen has been brought on as CEO, attempting to lead the firm’s turnaround with the caveat that it has now returned to disc-based business. It has come full circle, and the company has not done what it was intended to do.
C3.ai (NYSE:AI) continues to underwhelm investors. The Enterprise AI firm and stock has been one of the most highly lauded shares in 2023. It offers investors the promise of Enterprise AI software and the resultant efficiency gains therein.
Superficially, it sounds good. C3.ai established itself early on as the enterprise AI software firm to pay attention to. The advent of generative AI in 2023 sent its shares soaring between January and late summer. In fact, shares more than quadrupled during that period. Of course, it was around that time that serious valuation concerns started to crop up concerning AI in general.
A few weeks later, the company would release its quarterly results and deliver bad news. The company had been predicting that it would achieve non-GAAP profitability by the end of the year. It withdrew that guidance. Additionally, C3.ai announced it expected a larger loss for the year than previously anticipated.
So, the company has no earnings, and thus, we can’t judge it by Common ratios like price to earnings ratio, for example. However, we can look at another ratio, the price-to-sales ratio. Unfortunately, the company is more expensive than 90% of its competition. That strongly suggests that it is among the most overvalued stocks to sell.
Zoom Communications (ZM)
I’ll probably be wrong, but I believe that Zoom Communications (NASDAQ:ZM) is among the most overvalued stocks to sell.
While I understand that many positives underpin Zoom Communications, its business is too simple. I don’t believe that investors should pay $141 For every dollar of its earnings. That P/E ratio is higher than 92% of its industry competitors. Unfortunately, Zoom Communications has established a dominant position in webcam communications, so I’ll probably be wrong.
That said, Zoom Communications has struggled in the post-pandemic era. The company was able to establish a dominant position due to lockdowns related to COVID-19. Those lockdowns resulted in strong growth for the company.
That era is over, and now the company is searching for a way to replace those lost revenues. It has decided to take on Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOG, NASDAQ:GOOGL) in the digital document space.
It’s going to be a very difficult, uphill battle to displace two of the largest tech firms in an area they have long dominated. Thus, I think more and more questions about the company’s valuation are bound to emerge. Inevitably, that will erode its price over time.
On the date of publication, Alex Sirois 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.