As we come closer to entering the month of June, it is crucial to reassess our portfolios and identify stocks that may have been overhyped and are now poised for a potential downturn. This article will explore three such stocks that investors should consider selling before their valuations take a significant hit. These overhyped stocks to sell may be too risky for investors to continue holding, and I think the worst has yet to come for these companies.
Companies can be overhyped due to various factors, such as excessive media attention, unrealistic growth expectations and market sentiment. When a company receives significant praise and coverage from media outlets and analysts, it can create a buzz that attracts investors, driving up the stock price beyond its intrinsic value.
Sometimes, investors jump on a meme stock thinking it’s a great contrarian play, only to be disappointed later. Whatever the case is, these three overhyped stocks to sell should be avoided or dropped from one’s portfolio.
Etsy (ETSY)
Etsy (NASDAQ:ETSY), a unique online marketplace known for its handmade and vintage items, has experienced a challenging period in recent years. Despite its niche appeal, the company’s growth has remained relatively stagnant over the past three years, with its performance peaking during the COVID-19 pandemic. This period also saw significant fluctuations in Etsy’s earnings per share (EPS), indicating an inability to consistently increase profitability.
In 2022, Etsy reported a negative EPS of -5.48, a stark contrast to the previous year’s EPS of 3.4. It is important to note that the company’s pre-pandemic EPS averaged around 0.68, suggesting the COVID-19 crisis may have distorted the expectations for the business’s future performance.
Moreover, Etsy’s current valuation appears expensive compared to its expected growth rate. The company is trading at about 30 times earnings, while its top-line growth is projected to be a mere 5%.
It’s great to see new entrants into the world of e-commerce, but ETSY could be avoided.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID), an electric vehicle manufacturer, has faced significant challenges, including share dilution. Since the end of 2021, Lucid’s share count has increased dramatically, from .74 billion to nearly 2.3 billion, primarily due to equity raises to fund operations.
The company’s outstanding shares have also grown 25.67% year-over-year, which could continue.
There’s also a notable drop in the number of vehicles Lucid produced in Q1 2023 vs. the most recent quarter — a 25% decrease.
It can be hard to contain one’s excitement around LCID’s future as one of those hot EV startups that has shown promise. However, I feel that LCID’s high rate of share dilution is too steep for most investors to comfortably bear, thus making it one of those overhyped stocks to sell.
Pitney Bowes (PBI)
Pitney Bowes (NYSE:PBI), a company known for its mailing and shipping solutions catering to businesses of various sizes, may be facing a potential threat to its once-established competitive advantage.
Investors seem to enjoy PBI’s solid dividend yield of 3.81% as well as the perceived stability of its business.
However, despite its partnerships with entities like the United States Postal Service and companies like FedEx (NYSE:FDX), Pitney Bowes has experienced a significant decline in its three-year operating cash flow per share over the past three years, primarily due to higher operating costs.
The rise of digital-first mailing and shipping solutions, which offer lower costs and more user-friendly operations for small and medium-sized businesses, could potentially overtake Pitney Bowes’ market share.
Moreover, as the e-commerce industry continues to expand, an increasing number of competitors are expected to enter the shipping space, potentially leading to price compression on Pitney Bowes’ margins and earnings.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.