Beware of These 4 Ultra-Popular but Overvalued Stocks in September
Over the past few weeks, the stock market rally has helped many stocks skyrocket in price. However, not all winning stocks possess fundamental strengt...
Over the past few weeks, the stock market rally has helped many stocks skyrocket in price. However, not all winning stocks possess fundamental strength. And because many analysts expect the stock market to remain under pressure in the near term, we think ultra-popular stocks Palantir Technologies (PLTR), Peloton Interactive (PTON), Naked Brand Group (NAKD), and Zomedica (ZOM) are extremely risky bets now, given their weak financials and sky-high valuations. Read on.
Consumer confidence in the United States dipped to a six-month low in August due to concerns over rising COVID-19 cases and rising inflation. According to a Conference Board survey, the consumer confidence index slipped to 113.8 in August from 125.1 in July, its lowest level since February.
Although strategists believe it's too early to predict a market correction, the risks have been rising with concerns over changes in Fed policy and the rapid spread of the COVID-19 Delta variant. And although solid second-quarter corporate earnings results have driven the major stock market indexes to hover near their all-time highs, many stocks have become highly overvalued.
Amid this environment, ultra-popular stocks Palantir Technologies Inc. (PLTR), Peloton Interactive Inc. (PTON), Naked Brand Group Limited (NAKD), and Zomedica Corp. (ZOM) could witness significant price declines in the near term because their weak growth prospects don’t justify their current valuations. So, we think these stocks are best avoided now.
Palantir Technologies Inc. (PLTR)
PLTR develops and deploys software systems for the United States intelligence community to assist terrorist investigations and operations. The company provides Palantir Foundry, a platform that alters how organizations operate by establishing a centralized operating system for their data and allowing individual users to integrate and analyze the data they require in a single location.
Last month, Bronstein, Gewirtz & Grossman, LLC began investigating potential claims on behalf of purchasers of PLTR. The investigation concerns whether the company and certain of its officers or directors have violated federal securities laws. This controversy might negatively impact PLTR’s share price in the near term.
PLTR’s operating expenses increased 52.5% year-over-year to $430.86 million in the second quarter, ended June 30, 2021. Its operating loss grew 47.4% from its year-ago value to $146.15 million, while its net loss increased 25.5% year-over-year to $138.58 million over this period. The company’s loss per share came in at $0.07.
PLTR’s EPS is expected to decline 20% year-over-year to $0.16 in the current year. The stock has declined 2.8% in price over the past nine months.
In terms of forward Price/Sales, PLTR is currently trading at 33.49x, which is 709.9% higher than the4.13x industry average. Also, in terms of its forward P/E, the stock is currently trading at 158.66x, which is 543.3% higher than the 24.66x industry average.
PLTR’s POWR ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PLTR has also rated an F grade for Value, and a D for Stability. Within the F-rated Software – SAAS industry, it is ranked #14 of 16 stocks.
To see additional POWR Ratings for Growth, Sentiment, Quality, and Momentum for PLTR, click here.
Peloton Interactive Inc. (PTON)
PTON sells interactive fitness products worldwide. Under the brands Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+, it provides connected fitness products with touchscreens that stream live and on-demand classes. Additionally, the company offers connected fitness subscriptions for various household users and access to various live and on-demand courses. PTON is based in New York City.
For the fourth quarter ended June 30, 2021, PTON’s gross profit declined 12.2% year-over-year to $253.6 million. The company operating expenses increased 179.4% from year-ago value to $555.4 million. Its operating loss surged 235.2% from the prior-year quarter to $301.7 million, while its net loss increased 251.5% year-over-year to $313.2 million.
The company’s EPS is expected to decline at the rate of 255.4% per annum over the next five years. Analysts expect its EPS to remain negative in its fiscal year 2021. The stock has declined 15.1% in price over the past month and 34% year-to-date.
Currently, PTON looks extremely overvalued. In terms of forward Price/Book, PTON’s 26.35x is 634.9% higher than the 3.59x industry average. In addition, its 5.83x forward EV/Sales is 277.4% higher than the 1.55x industry average.
PTON’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
It also has an F grade for Stability, Value, and Growth. In addition, PTON is ranked #69 of 71 stocks in the D-rated Consumer Goods industry.
Click here to see the additional POWR Ratings for PTON (Quality, Momentum, and Sentiment).
Naked Brand Group Limited (NAKD)
NAKD primarily designs, retails, and sells women's and men's intimate clothing and swimwear in the United States. In addition, under the licensed Frederick's of Hollywood brand, the Auckland, New Zealand-based company sells intimates, sleepwear and loungewear, swimwear and accessories, and costume products.
During the fiscal year ended January 30, 2021, NAKD’s revenue declined 11.1% year-over-year to $80.04 million. Its operating loss came in at $9.67 million over this period. Its net loss increased 25.9% year-over-year to $68.35 million over this period. Over the past six months, the stock has declined 32.5% in price.
In terms of trailing-12-months EV/sales, NAKD is currently trading at 8.41x, which is 409.4% higher than the 1.65x industry average. Also, in terms of its trailing- 12-months Price/Book, the stock is currently trading at 5.05x, which is 59.8% higher than the 3.2x industry average.
NAKD’s weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The stock also has an F grade for Value, and a D Sentiment and Stability. In the Consumer Goods industry, it is ranked #64 of 71 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the NAKD ratings for Growth, Quality, and Momentum here.
Zomedica Corp. (ZOM)
ZOM, an Ann Arbor, Mich.-based veterinary health company, develops companion animal solutions to meet the needs of clinical veterinarians. The company engages in the development and commercialization of TRUFORMA, a diagnostic biosensor platform for detecting thyroid disorders in dogs and cats and adrenal disorders in dogs. In addition, it has collaboration agreements with Celsee, Inc. for the development and commercialization of liquid biopsy assays and related consumables to detect cancer in companion animals, and with Seraph Biosciences, Inc. for the development and commercialization of novel pathogen detection systems.
ZOM’s selling, general, and administrative expenses increased 261% year-over-year to $5 million in the second quarter, ended June 30, 2021. The company reported a 4.7 million net loss, while its loss per share was $0.005 over this period.
The stock has declined 24.1% in price over the past three months and 65.9% over the past six months.
ZOM looks extremely overvalued. In terms of trailing-12-months EV/Sales, ZOM’s 1.53Kx is significantly higher than the 7.34x industry average. In addition, its 15.88x trailing-12-months Price/Sales is considerably higher than the 8.23x industry average.
ZOM’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.
ZOM also has an F grade for Stability and Quality, and a D for Sentiment. In addition, the stock is ranked #211 of 214 stocks in the F-rated Medical – Pharmaceuticals industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the ZOM ratings for Momentum and Growth.
PLTR shares were trading at $26.07 per share on Wednesday morning, down $0.27 (-1.03%). Year-to-date, PLTR has gained 10.70%, versus a 21.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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