While it’s unclear whether the current bull market has more runway, or is veering towards a correction, you may want to take action now and jettison overvalued stocks to sell from your portfolio. In fact, irrespective of whether the broad market surges, sinks or trades sideways from here over the next few months, individual overvalued stocks can still be at risk of experiencing severe price declines.
Stocks become overvalued, when the market extrapolates near-term trends, pricing in the expected long-term growth as a near certainty. These stocks can also often be known as being “priced for perfection” stocks. They can stay “priced for perfection” as long as the bullish narrative persists. But, each of them may be one bad earnings release away from experiencing a sharp price reversal.
Also, there are beaten down stocks that, despite becoming considerably cheaper, are still overvalued, as factors like industry headwinds and deteriorating fundamentals remain not yet fully priced-in. These types of stocks are at risk of further declines, as the market concedes that a particular situation has gone from bad to worse. Below are seven stocks that fit into either of these categories. Consider them overvalued stocks to sell, before it’s too late.
Boeing (BA)
Boeing (NYSE:BA) is an example of an overvalued stock that fits best in the latter category mentioned above. Shares in the aerospace giant have been hammered by the fallout from aircraft safety incidents, and the resultant delays in the company’s post-Covid rebound in new aircraft delivery.
After falling by nearly 30% year-to-date, you may at first assume that recent headwinds have become fully factored into the price of BA stock. However, it’s not as if this year’s problems have resulted in Boeing sinking down to a fire sale valuation. At current prices, BA trades for 34.9 times analyst consensus for 2025 earnings. If, in the coming quarters, it becomes more apparent that the Boeing comeback will be delayed, or will arrive more slowly than currently anticipated, an additional price decline may be in store.
That’s not all. Boeing’s late-2010s 737 safety headwinds, including two fatal plane crashes, haven’t fully gone away. Families of the victims are now pushing for the U.S. Department of Justice to fine Boeing nearly $25 billion. Even if the company ultimately isn’t on the hook for such a figure, this could in the near-term also weigh on valuation.
Cava (CAVA)
This isn’t the first time I’ve called Cava (NYSE:CAVA) one of the overvalued stocks to sell. Back in April, I argued that shares in the Mediterranean restaurant chain were very overvalued, and on the verge of pulling back due to profit taking after the company’s latest earnings release.
Admittedly, this failed to pan out. Instead of pulling back post-earnings, CAVA stock surged even higher, and just recent hit a new all-time high. Even so, while Cava has remained one of the hottest stocks out there, if you own it, at the very least you may want to take some risk off the table. At current prices, CAVA trades for 263.5 times forward earnings.
This valuation appears particularly rich, considering that sell-side forecasts only call for revenue and earnings growth next year of 20% and 25.7%, respectively. Wall Street’s sell-side community has already started to ring the warning bells. Earlier this month, analysts at JP Morgan downgraded CAVA to “neutral” from “buy,” giving the stock a $77 per share price target, citing valuation concerns.
Casella Waste Systems (CWST)
Over the past decade, Casella Waste Systems (NASDAQ:CWST) has been scaling itself up towards the size of its larger competitors in the waste management industry, such as Waste Management (NYSE:WM) and Republic Services (NYSE:RSG).
The resultant compounding in earnings growth has of course been a boon for long-term CWST stock investors. Shares are up nearly 20-fold since 2014. Yet after this incredible run, Casella may not be top of the heap for much longer. At current prices, shares sell for a staggering 126.6 times forward earnings. This represents a massive valuation premium to WM and RSG, which trade at forward price-to-earnings (P/E) multiples of 28.5 and 31.7, respectively.
Yes, Casella continues to buy up competitors and wring out cost efficiencies. As a result, CWST is expected to continue reporting high levels of per-share earnings growth. Current consensus calls for earnings per share to rise by 56.4% next year. Still, with expectations set so high, falling even slightly short of them could drive a big correction for the stock. On a longer time frame, CWST’s valuation could normalize, meaning that while earnings growth continues, shares underperform, as fundamentals catch up with valuation.
Nio (NIO)
Nio (NYSE:NIO) has fallen considerably since 2021, when vehicle electrification stocks peaked in popularity. Once trading for prices above $60 per share, today shares in this China EV maker trade for around $4.30 per share.
But while NIO stock has fallen into penny stock territory, make no mistake. This remains one of the overvalued stocks to sell. The company sports a nearly $9 billion valuation, despite continued heavy losses, as well as continued issues with getting back into high-growth mode. Although the company’s latest monthly delivery numbers may suggest that it’s heading back into the growth fast lane, Louis Navellier and the InvestorPlace Research Staff begs to differ.
As Navllier recently argued, Nio’s hyping up its potential to experience a growth resurgence. Why? High competition in the Chinese EV market calls it into question. Moreover, recent trade tensions between the U.S. and China could limit Nio’s global expansion plans, including in Europe. In the quarters ahead, if operating performance fails to dramatically improve, and further cash burn leads to a growing likelihood for additional dilutive capital raises, expect a further correction for NIO.
Roblox (RBLX)
Excitement about the metaverse growth peaked in 2022. Since 2023, it’s taken a backseat to excitement over the generative AI growth trend. Hence, it’s not surprising that Roblox (NYSE:RBLX) shares have fallen by nearly 75% from their all-time closing high of $134.72 per share.
That said, even after this tremendous price decline, I wouldn’t call the video game platform operator’s shares a bargain. The company sports a valuation of around $23 billion. This comes despite Roblox continuing to be unprofitable. Yes, sales growth has continued to steadily climb. Losses have also narrowed. All of this may suggest that RBLX can at the very least grow into its valuation, but that’s hardly a given. At least, based upon the guidance that accompanied RBLX’s latest quarterly earnings release.
The latest outlook fell short of sell-side expectations. For this alone, shares fell by around 22% immediately after earnings back in May. A continued de-rating for Roblox may occur, if growth keeps slowing down, and subsequent guidance quells growth resurgence hopes. Barring renewed enthusiasm for metaverse stocks, be cautious. Sell or stay away from RBLX.
Reddit (RDDT)
Reddit (NYSE:RDDT) is another name I’ve pointed out as being one of the overvalued stocks to sell. Shares in the social media platform have experienced roller coaster price action, since debuting in the public markets in March.
However, at current prices in the high-$50s per share, RDDT stock is overvalued compared to current fundamentals. Right now, investors are pricing into Reddit the possibility of the company capitalizing greatly on the gen AI boom. Namely, through a collaboration with ChatGPT developer OpenAI. Also, while not certain, the latest wave of “meme mania” in the stock market may be having a positive impact on the valuation of RDDT.
However, “meme mania” is heading into the sunset once again. It’s very possible that AI-related upside was already priced into RDDT at the time of its IPO. Shares are already starting to pull back, so a return to the stock’s 52-week low in the high-$30s may be just around the corner. Reddit’s stock market subreddits may or may not be a great source for investing ideas, but RDDT is not a great idea for profit-seeking investors right now.
Snowflake (SNOW)
Snowflake (NYSE:SNOW) shares have fallen by nearly 50% since March. Following this big price decline, you may think that this cloud data stock has finally fallen to a reasonable price. However, even after such a massive haircut, SNOW continues to sport a triple-digit multiple.
That is, at current prices, SNOW trades for 200.5 times forward earnings. Investors are nowhere near as hyped-up about Snowflake’s AI potential as they were just before the disappointing guidance update that triggered its avalanche of a price decline, but some may be holding hope “better than feared” results are just around the corner. It’s perfectly fine to make this wager. After all, Snowflake recently provided some upbeat guidance for the current quarter.
However, keep in mind that downside risk still runs high. If Snowflake’s launch of new AI products fails to shore up its growth, another massive de-rating could take shape. At such a high forward multiple, the stock could experience another 50%, 60%, maybe even a 70% price decline, and still be in overvalued territory. With far less pricey ways to play the AI growth trend out there, don’t waste your time or risk your capital with SNOW.
On the date of publication, Thomas Niel 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.