Overinflated and Overrated: 3 Stocks to Avoid at All Costs

  • Due to worsening economic conditions, several stocks are performing poorly in the market and should be avoided. 
  • Robinhood Markets (HOOD) – A popular commission-free trading app that has struggled due to the worsening geopolitical situation in the Middle East.
  • Arista Networks (ANET) – A giant in the cloud networking solutions space. But its stock has been losing value after analysts reduced their ratings. 
  • Airbnb (ABNB) – The largest online hospitality and accommodation platform, but it is failing to deliver on its promise to use AI to take over the global OTA industry. 
Stocks to Avoid - Overinflated and Overrated: 3 Stocks to Avoid at All Costs

Source: Adam Vilimek / Shutterstock.com

Many stocks fail to deliver on investor promises every year, and this year is no different. Many analysts attribute the poor performance of certain stocks to the worsening economic situation, but reports of international disputes have also contributed to it. With market pressures and geopolitical conflicts at an all-time high, analysts have advised investors to steer clear of specific stocks.

This article highlights three of the worst-performing stocks that investors should avoid at all costs, or at least until the economic situation gets better. Here’s why Robinhood Markets (NASDAQ:HOOD), Arista Networks (NYSE:ANET) and Airbnb (NASDAQ:ABNB) are bad investments in the second half of the year.

Robinhood Markets (HOOD)

Robinhood (HOOD) app and logo on screen. Robinhood financial services company. The company offers mobile app and website that offers people the ability to invest in stocks
Source: dennizn / Shutterstock.com

Robinhood Markets is a financial services company based in the United States. It is popular for its products, which help users secure their financial future and manage their assets commission-free. Stocks, ETFs, options, and cryptocurrencies are some of the assets available on the Robinhood app. 

On paper, Robinhood Markets appears to be doing fine. According to its recent quarterly report, the company generated $157 million in earnings in the first quarter of the year and posted a record revenue of $618 million just last month. 

However, the opposite seems to be the case. Analysts are becoming increasingly convinced that Robinhood Markets is maintaining a false position in the market and is due for a correction anytime now. This is evident from its recent rating downgrade at Citi Research, a global investment bank and financial services provider. 

Citi Research analysts believe that despite Robinhood’s strong start to the year, several factors, such as slower retail activity or a pullback in Bitcoin prices, could affect its profitability. Furthermore, there are rumors that the company could face a lawsuit from the SEC. This could prove detrimental, as much of Robinhood’s growth and popularity is thanks to its crypto unit. 

Arista Networks (ANET)

Arista Networks, Inc. (ANET) logo displayed on top of a building
Source: Sundry Photography / Shutterstock.com

Arista Networks is a popular American computer networking company that specializes in delivering cloud networking solutions for large-scale enterprises, such as data centers and server farms. As a major player in the tech industry, Arista Networks seems like a great stock investment at first glance. 

However, major analysts like Rosenblatt don’t seem to share this sentiment. They argue that the company’s opportunity in the AI space is not as huge as perceived and that its stock price is currently inflated. They feel that a price correction is due soon. 

Arista Networks is one of the tech stocks that has greatly benefitted from the recent boom in AI. According to its recent quarterly report, its earnings per share have grown by 44% in the last year. 

Furthermore, it has severely overperformed the vast majority of the market, as noted by its 403% increase. For context, the S&P 500 only grew by 85% simultaneously. 

Airbnb (ABNB)

Airbnb (ABNB) logo on phone screen stock image.
Source: sdx15 / Shutterstock.com

Airbnb is a global giant in the hospitality and accommodations industry. It is popular for its online marketplace, which facilitates short and long-term housing experiences. Airbnb is available in over 200 countries and regions worldwide. 

On the financial front, Airbnb is not performing too poorly. According to its recent quarterly report, it generated a revenue of $2.14 billion, overperforming analyst’s estimates by 3.98%. However, these numbers don’t tell the whole story. 

Despite the company’s dominance in the hospitality space, several analysts — one of them is Needham & Company — are voicing concerns about its stock’s potential in the market. They reason that Airbnb’s ability to dominate the global online travel agency through artificial intelligence is grossly overrated. Due to this, the company has downgraded the stock.

The Needham & Company downgrade is the third downgrade Airbnb has received this year, following similar actions from DA Davidson and Phillip Securities. Lack of faith from analysts is always a red flag and could lead to poor stock performance in the market.

On the date of publication, Joel Lim 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.

Joel Lim is a contributor at InvestorPlace.com and a finance content contractor who creates content for several companies like LTSE and Realtor, along with financial publications, including Business Insider, Yahoo Finance, Mises Institution and Foundation for Economic Education.

Article printed from InvestorPlace Media, https://investorplace.com/2024/06/overinflated-and-overrated-3-stocks-to-avoid-at-all-costs/.

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