After witnessing the blistering returns of the broader technology index – along with tangentially related risk-on assets like cryptocurrencies – now might seem an unideal time to target overvalued tech stocks to sell. Frankly, it seems the ecosystem just can’t lose. However, that also could be the warning that not all is well.
Sure, some enterprises – such as the overheated semiconductor specialist Nvidia (NASDAQ:NVDA) – could continue defying gravity. However, for every NVDA, there are tons of overvalue tech stocks to sell waving potential red flags. While they might be looking unstoppable at the moment, eventually, the fundamentals start to matter.
When they do, you might be feeling differently. Here are overvalued tech stocks to sell – or at least consider trimming.
Peloton (PTON)
What it is: Made popular just before the Covid-19 pandemic, Peloton (NASDAQ:PTON) – which manufactures interactive fitness equipment and subscriptions to on-demand workout classes – experienced a relevance boost due to the crisis. Unfortunately, once the pandemic and its associated fears faded, people no longer cared as much for PTON.
Relevance: Frankly, PTON ranking among the overvalued tech stocks to sell stems from its top line contraction. Notably, in fiscal year 2021 (ended June), Peloton posted revenue of $4.02 billion. That was awesome. However, in FY 2022, revenue slipped to $3.58 billion, then to $2.8 billion in FY 2023. If that wasn’t worrying enough, on a trailing-12-month (TTM) basis, revenue sits at $2.78 billion.
Downside Catalysts: Wall Street experts rate PTON as a consensus hold, breaking down as five buys, 12 holds and two sells. While PTON trades at 0.81x trailing sales – which is undervalued on paper – Gurufocus warns that it’s a possible value trap.
Upside Risks: Contrarian bulls may try to push PTON higher through blowing up sold calls in the options market.
Virgin Galactic (SPCE)
What it is: Initially, Virgin Galactic (NYSE:SPCE) appears an enticing prospect, certainly not one of the overvalued tech stocks to sell. Tied to the burgeoning space economy, Virgin Galactic specializes in space tourism flights. In early 2021, SPCE caught the attention of speculators, sending shares skyrocketing. Unfortunately, reality started to hit the enterprise. Since the beginning of the year, SPCE is down almost 30%.
Relevance: While it wouldn’t be fair to claim that Virgin is entirely speculative – it does generate revenue, after all – SPCE stock suffers from a credibility crisis. Yes, on a TTM basis, the company posts sales of $4.86 million. However, that’s not much growth from 2022’s revenue haul of $2.31 million, not when you consider the hype train. Also, in 2021, Virgin Galactic only rang up $3.29 million in sales so it’s not really moving the needle.
Downside Catalysts: Even with the poor top-line performance, SPCE trades at an unsightly trailing-year sales multiple of 169.6x. Also, analysts peg shares as a consensus moderate sell with a $2.08 average price target, implying 15% downside.
Upside Risks: SPCE is up over 21% in the trailing five sessions so it’s clear the bulls are looking to damage the shorts.
Beyond Meat (BYND)
What it is: Although the underlying plant-based meat concept has been around for decades, Beyond Meat (NASDAQ:BYND) helped to popularize the narrative. Offering a fundamental boost is the young consumer demographic. According to Supermarket News, 79% of Generation Z choose to go meatless one day a week. So, that should be good for BYND, right? Well, take a look at Beyond Meat’s long-term price chart.
Relevance: As compelling as the storyline is, the problem with BYND is that it’s not getting the job done in the financials. After seeing revenue drive up to $464.7 million in 2021, on a TTM basis, the top line has slipped to $349.6 million. Unfortunately, the company is simply not competitive with animal-protein providers. It stinks but the gross margin for both 2022 and the TTM period sits in negative territory.
Downside Catalysts: Despite the fading revenue and market performance, BYND trades at 1.92X trailing-year sales, which is overvalued. Plus, analysts rate it a moderate sell with a $5.83 price target, implying 44% downside risk.
Upside Risks: Speculation is an addictive drug. Specifically, the bulls will be looking to blow up the bears’ sold calls. Recently, this contrarianism has been absolute fire.
On the date of publication, Josh Enomoto 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.
