In certain market conditions, stocks may temporarily deviate from their intrinsic value, leading to overvaluation. Eventually, they tend to revert to their true worth. However, buying overvalued stocks often leads to underperformance as prices readjust.
To gauge stock value, various metrics are used, including P/E and EV/EBITDA ratios, and comparison of stock price to company earnings. So, future earnings growth becomes crucial, as fast-growing firms often command higher multiples. The PEG ratio can signal overvaluation, integrating price, profits and growth.
Let’s explore overvalued three tech stocks that investors are better off releasing sooner rather than later.
Tesla (TSLA)
Chief Executive Officer (CEO) Elon Musk continues to see Tesla (NASDAQ:TSLA) a long-term solid investment despite facing hurdles. Tesla’s prospects are better than perceived, with significant growth in services and energy sales. Also, Musk’s commitment to artificial intelligence (AI) and robotics within Tesla promises substantial long-term potential.
According to market experts, it may not take long for Tesla to be removed from the Magnificent Seven due to a challenging market. A report from J.D Power says that consumer interest in electric vehicles (EVs) have been consistent after three years. Moreover, layoffs are still happening with weak demand. And, Tesla is one of of the affected companies on the receiving end.
Further, Tesla launched a “damage-control campaign” to mend ties with European leasing companies that were upset over price cuts and slow service. These issues and weak U.S. EV demand are creating significant challenges.
Peloton (PTON)
As one of the pandemic’s stars, Peloton (NASDAQ:PTON) is now a no-brainer sell. The company slowed down on growth, and the stock and sales have declined since 2021. The reopening of gyms and a recent recall of two million bikes in the U.S. have further hurt its appeal.
According to sources, Peloton secured a crucial $1 billion loan to strengthen its finances amid declining demand post-pandemic. Once valued at nearly $50 billion, the company faced reduced sales as people returned to gyms. Following CEO Barry McCarthy’s recent resignation and a 15% workforce cut, the loan will help refinance upcoming debts, including a 2026 convertible bond.
Moreover, the new financing was essential for Peloton to manage its capital burn and address the $1 billion convertible debt maturing in 2026. The company faced a unique challenge with a $750 million term loan provision requiring immediate repayment if over $200 million of the convertible bond remained by November 2025. The $1 billion loan secured on last week had a roughly 12% yield, highlighting Peloton’s financial stress, and was not rated by major U.S. credit agencies.
Coinbase (COIN)
Last quarter, Coinbase’s (NASDAQ:COIN) direct revenue from stablecoins totaled $197.3 million, with additional income from interest, finance and custodial fees. These sources, likely related to stablecoins, face a significant revenue risk if the stablecoin bill passes.
In recent news, Coinbase lost a Supreme Court case regarding its Dogecoin sweepstakes. The suit involved consumers’ alleged deception in entry fees. The company lost to unanimous ruling and was clarified by court of its arbitration decisions. After the news broke out, COIN declined over 3.5%, showing a reflective response from its chief legal officer.
Also, the company showed support for the motion of interlocutory appeal against the Securities and Exchange Commission (SEC). This aims to clarify the status of digital asset transactions. Coinbase’s chief legal officer Paul Grewal highlighted the concern for SEC scrutiny. The dispute concerns whether digital asset transactions fall under the “investment contract” category, impacting the vast cryptocurrency market.
Considering these factors, selling Coinbase stock appears prudent amid regulatory uncertainties.
On the date of publication, Chris MacDonald 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.
