5 Overvalued Growth Stocks to Avoid as Market Conditions Get More Bearish | Fintech Zoom
The major benchmark indexes witnessed a pullback earlier this week on concerns about the spread of the COVID-19 Delta variant in several countries. COVID-19 cases, hospitalizations, and deaths are rising in the United States, and the Delta variant is responsible for 80% of new cases. This, combined with concerns over the ascending inflation rate, has introduced bearish market sentiment.
While many expect the risk-off sentiment to be short-lived and the economic growth to continue, some stocks that have moved ahead of their growth prospects on optimism about continued economic growth might retreat in the near term.
Growth stocks Snowflake Inc. (SNOW), Peloton Interactive, Inc. (PTON), Chewy, Inc. (CHWY), Teladoc Health, Inc. (TDOC), and C3.ai Inc. (AI) all look overvalued at their current price levels considering their limited near-term growth prospects. So, we believe these stocks are best avoided now.
Snowflake Inc. (SNOW)
SNOW provides a cloud-based data platform that enables customers worldwide to consolidate data into a single source to drive business insights, build data-driven applications and share data. SNOW is based in San Mateo, Calif.
On June 10, 2021, OneTrust, a computer software company, partnered with SNOW to extend SNOW’s support for scanning and classification via SNOW’s Snowpark, a new developer experience that provides an intuitive API for querying and handling data. By integrating Snowpark with OneTrust DataDiscovery, users can find and identify sensitive data while reducing the amount of time and money spent complying with regulatory requirements. SNOW’s non-GAAP operating loss for its fiscal first quarter ended April 30, 2021, decreased 50.6% year-over-year to $35.81 million. The company’s net loss came in at $205.60 million, up 113.3% from the prior-year period. Its loss per share decreased 59.3% year-over-year to $0.70. The company had $664.67 million in cash and cash equivalents as of April 30, 2021.
The consensus EPS estimate for SNOW is expected to be negative for the coming quarters of 2021. In terms of forward EV/Sales, SNOW is currently trading at 63.62x, which is 1473.5% higher than the 4.04x industry average. In terms of its forward price/Sales, the stock is currently trading at 68.02x, 1622.7% higher than the 3.95x industry average. The stock has lost 9.4% over the past six months and closed yesterday’s trading session at $259.30.
SNOW’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Value, and a D grade for Growth, Stability, and Quality. Click here to see the additional ratings for SNOW (Sentiment and Momentum).
SNOW is ranked #71 of 71 stocks in the D-rated Technology – Services industry.
Click here to check out our Cloud Computing Industry Report for 2021
Peloton Interactive, Inc. (PTON)
PTON provides an interactive fitness platform and delivers in-studio fitness classes, fitness clubs, at-home fitness equipment, content, and health & wellness apps. The company sells its interactive fitness products directly through its retail showrooms and on its onepeloton.com website.
On June 29, 2021, Jakubowitz Law announced that a class action lawsuit had commenced against PTON on behalf of its shareholders. The plaintiff alleges that PTON didn’t disclose its Tread+ treadmills had caused a serious safety threat to children and pets as there were multiple incidents of injury to both and that the U.S. Consumer Product Safety Commission (CPSC) had declared that Tread+ posed a serious risk to public health and safety and urgently recommended that consumers with small children cease using the Tread+. Such lawsuits are likely to make investors lose confidence in the stock.
For the fiscal first quarter ended March 31, 2021, PTON’s loss from operations decreased 76.5% year-over-year to $13.70 million. While its net loss decreased 84.5% year-over-year to $8.60 million, its loss per share fell 85% year-over-year to $0.03. As of March 31, 2021, the company had $2.06 billion in cash and cash equivalents.
In terms of non-GAAP forward P/E, PTON’s 743.24x is 4512.9% higher than the 16.11x industry average. In terms of its forward price/Sales, the stock is currently trading at 9.40x, which is 633.6% higher than the 1.28x industry average. The stock has lost 20.1% over the past six months and closed yesterday’s trading session at $126.43.
PTON’s POWR Ratings reflect its poor prospects. The company has an overall D rating, which translates to Sell in our proprietary ratings system.
PTON has an F grade for Value and Stability, and a D for Growth. In addition to the POWR Ratings grades we’ve just highlighted, one can see PTON ratings for Quality, Sentiment, and Momentum here.
PTON is ranked #62 of 71 stocks in the D-rated Consumer Goods industry.
Chewy, Inc. (CHWY)
CHWY operates an online platform that sells pet food, supplies and medications, and other pet-related products worldwide.
On May 21, 2021, CHWY introduced a series of features on its popular telehealth service, Connect with a Vet. Features such as Video consultation, pre-scheduling a virtual vet consultation, and extended availability even on weekends should enhance customers’ and veterinarians’ experience. The company hopes to see high demand for its service because pet health check-ups and medications have been on the rise over the past year.
For its fiscal first quarter ended May 2, 2021, CHWY’s total operating expenses increased 29.2% year-over-year to $550.66 million. The company had $637.53 million in cash and cash equivalents as of May 2, 2021.
For its current fiscal year, analysts expect CHWY’s EPS to remain negative. CHWY’s 583.75x non-GAAP forward P/E is 3523% higher than the 16.11x industry average. In terms of forward EV/EBITDA, CHWY is currently trading at 156.71x, which is 1302.6% higher than the 11.17x industry average. CHWY has lost 20.8% over the past six months to close yesterday’s trading session at $83.20.
CHWY’s weak prospects are reflected in its POWR Ratings. The stock has a D grade for Value and Stability. We also have graded CHWY for Growth, Sentiment, Quality, and Momentum. Click here to access all CHWY’s ratings.
Of the 71 stocks in the D-rated Consumer Goods industry, CHWY is ranked #57.
Teladoc Health, Inc. (TDOC)
TDOC engages in the provision of virtual healthcare services using a technology platform on a business-to-business basis. The Dallas, Tex.-based company serves health employers, health plans, hospitals, health systems, and insurance and financial services companies worldwide.
TDOC announced on July 14 that it had collaborated with Microsoft Corporation (((MSFT))) to integrate TDOC’s Solo platform for hospitals and health systems into ((MSFT))’s Microsoft Teams environment to strengthen physician and patient access to best-in-class virtual healthcare. Hoping to deliver a more seamless, unified experience for clinicians and patients, both companies hope to gain widespread recognition across the healthcare sector in the coming months.
However, TDOC’s financials are not promising. Its loss from operations for its fiscal first quarter ended March 31, 2021, increased 303% year-over-year to $84.68 million. While its net loss increased 574.4% year-over-year to $199.65 million, its loss per share increased 227.5% year-over-year to $1.31. As of March 31, 2021, the company had $720.10 million in cash and cash equivalents.
Analysts expect the stock’s EPS to remain negative in both the current year and next year. TDOC has missed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect the stock’s EPS to decline at a 3.1% rate per annum over the next five years.
In terms of forward EV/Sales, the stock is currently trading at 12.27x, which is 85.4% higher than the 6.62x industry average. In terms of its forward EV/EBITDA, the stock is currently trading at 91.84x, 484.9% higher than the 15.70x industry average. TDOC has lost 37.6% over the past six months and closed yesterday’s trading session at $153.32.
It’s no surprise that TDOC has an overall F rating, which equates to Strong Sell in our POWR Ratings system.
The stock has an F grade for Sentiment, and a D grade for Growth, Value, Stability, and Quality. Click here to see the additional ratings for TDOC’s Momentum.
TDOC is ranked #79 of 79 stocks in the Medical – Services industry.
Click here to checkout our Healthcare Sector Report for 2021
C3.ai Inc. (AI)
AI is a software company that focuses on developing, deploying, and operating enterprise AI applications. The company serves the oil and gas, chemicals, utilities, manufacturing, financial services, defense, intelligence, aerospace, healthcare, and telecommunications sectors.
In June AI partnered with NCS, a leading information, communications, and technology service provider, to deliver enterprise AI solutions to clients in Southeast Asia (SEA) and Australia/New Zealand (ANZ) across multiple industries. With NCS investing up to S$10 million to develop and deploy enterprise AI applications created on the C3 AI Suite, both the companies hope to build a strong digital partner ecosystem and provide clients access to world-leading technologies and enterprise solutions.
AI’s non-GAAP loss from operations for its fiscal fourth quarter, ended April 30, 2021, decreased 43.5% year-over-year to $15.44 million. The company’s net loss came in at $0.24, down 21% from the prior-year period. Its loss per share has been reported at $0.24 for the quarter, representing a decline of 70.7% from the year-ago period. As of April 30, 2021, AI had $115.36 million in cash and cash equivalents.
The stock’s consensus EPS estimate is expected to remain negative in the current year and next year. Analysts expect the stock’s EPS to grow at a 13% rate per annum over the next five years.
In terms of forward EV/Sales, AI’s 17.97x is 344.4% higher than the 4.04x industry average. In terms of its forward price/Sales, the stock is currently trading at 22.40x, which is 467.3% higher than the3.95x industry average. The stock has lost 58.4% over the past six months and closed yesterday’s trading session at $54.03.
AI’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
The stock has a D grade for Growth, Value, Stability, and Sentiment. Click here to see the additional ratings for AI (Quality and Momentum).
AI is ranked #69 of 71 stocks in the D-rated Technology – Services industry.
Click here to check out our Software Industry Report for 2021
SNOW shares were trading at $266.43 per share on Thursday afternoon, up $7.13 (+2.75%). Year-to-date, SNOW has declined -5.32%, versus a 17.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More…