The stock market is trading at all-time highs as investors remain optimistic about the economic recovery, despite the country’s COVID-19 situation taking a turn for the worse. The broad-market benchmark, the S&P 500, finished November 11.8% higher compared to the prior month. Moreover, the index notched its 28th record close of 2020 last week. The market’s rally over the past six months has led to several stocks becoming overvalued…
Investors usually use price-to-earnings (P/E) and price-to-sales (P/S) ratios for understanding whether a stock is overvalued or undervalued. If a stock is trading at premium in terms of these ratios relative to its peers or sector, it is considered overvalued and could be due for a pullback.
Though momentum stocks usually trade at premium valuations, it is becoming increasingly uncertain whether there is any further upside left in some of the fast-moving stocks. Sunrun Inc. (RUN – Get Rating), Planet Fitness, Inc. (PLNT – Get Rating) and Freshpet, Inc. (FRPT – Get Rating) have gained significant so far this year, and it appears from their current valuation multiples that a pullback is due for them. So, it’s better to avoid these stocks for now.
RUN engages in the design, development, installation, and maintenance of residential solar energy systems in the United States. It also sells panels and racking, solar leads, as well as offers battery storage. It is the largest pure-play solar company after its recent acquisition of Vivint Solar in October. Moreover, RUN was added to the S&P Midcap 400 index in the Industrials sector in August this year.
In terms of forward P/E, RUN is currently trading at 460.10x, 1,935.4% more expensive than the sector average of 22.60x. Moreover, RUN is overvalued in terms of trailing-12-month P/S as well (8.25x versus 1.37x).
In the third quarter of 2020, RUN reported total revenue of $210 million, declining 3% year-over-year. Despite increasing its megawatts (MW) deployment 40% sequentially to 109 MW, solar energy systems and product sales revenue came in at $95.3 million, a decrease of $24 million, or 20%, compared to the year-ago quarter. However, RUN delivered an EPS of $0.28, rising 21.7% year-over-year.
RUN is presently emphasizing on leasing its solar equipment. The company offers its product at zero dollars upfront. This may boost its customer base initially, but the financing operation might lead to a balance sheet sinkhole in the long-run. Though analysts expect RUN’s current quarter EPS to rise 10% year-over-year, the company’s current year EPS is expected to fall 42.9%.
With a year-to-date gain of 318%, RUN closed Friday’s trading session at $57.71. However, the stock has started to lose its momentum and is down 11.3% so far this month. RUN is presently trading 30% below its all-time high of $82.42.
PLNT is one of the largest and fastest-growing franchisors and operators of fitness. As of September 30, 2020, the company had more than 14.1 million members and 2,086 stores centers in the United States. PLNT primarily operates through three segments – Franchise, Corporate-Owned Stores, and Equipment.
PLNT’s forward P/E ratio currently stands at 905.61, which is significantly higher than the sector average of 19.50. In terms of trailing-12-month P/S as well, the stock is currently trading at 14.16x, 1,057.7% more expensive than sector average of 1.22x.
Total revenue in the last reported third quarter declined 36.8% year-over-year to…
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