There’s a simple problem with questioning the number of overvalued stocks in this market. For several years now, the same stocks that looked far too expensive have generally continued to rally…
Shopify (NYSE:SHOP), Netflix (NASDAQ:NFLX) and of course Tesla (NASDAQ:TSLA) are a few examples. Many SPACs (special purpose acquisition companies) saw big pops after announcing mergers — and then kept soaring.
Simply put, avoiding what look like overvalued stocks has been a likely path toward underperforming the market. Selling those names short has been a path toward possible financial ruin.
That history isn’t necessarily the result of a market gone mad. They’re seemingly overvalued stocks that are worth buying.
Artificial intelligence and electric vehicles (EVs) are just two of the so-called “megatrends” with the potential to literally transform the world in the coming decades. It’s not terribly surprising that equity investors are desperate to get exposure to those megatrends — and are happy to pay up for the privilege.
Even if that trend holds, however — and it may not — there are stocks out there that still look far too expensive for even an expensive market. These are four of the most overvalued stocks in this market:
- Lemonade (NYSE:LMND)
- Blink Charging (NASDAQ:BLNK)
- MicroVision (NASDAQ:MVIS)
- Riot Blockchain (NASDAQ:RIOT)
Overvalued Stocks: Lemonade (LMND)
Even after a pullback, LMND stock sells at 73x trailing-12-month revenue. That’s one of the highest multiples in the entire market.
It bears repeating: a high price-to-revenue multiple alone doesn’t make a stock overvalued. But there is a real concern as to whether Lemonade, over time, can justify that multiple.
After all, this remains an insurance company, albeit one dressed up in a tech package. That’s not an industry that sees much growth, leaving Lemonade reliant mostly on market share gains. It’s also not an industry that attracts much in the way of investor optimism. Even leaders like Chubb (NYSE:CB) and Allstate (NYSE:ALL) generally trade around 15x and 8x earnings respectively and below 1.5x book value.
LMND stock has pulled back of late, but there’s a case for more downside. Smaller “insurtech” peers are struggling, with Root (NASDAQ:ROOT) and Metromile (NASDAQ:MILE) both falling sharply in recent weeks. It wouldn’t be a surprise to see LMND’s own trajectory stay negative as 2021 rolls on.
Blink Charging (BLNK)
Everything related to electric vehicles has been hot since late October. BLNK stock is no exception. BLNK stock closed at $7.46 on Oct. 28. A little over four months later, it’s rallied a stunning 400%.
Broadly speaking, the optimism toward the space makes some sense. Democratic Party control of the federal government suggests increased subsidies for the industry. Commercial customers are looking toward EVs as well. And an infrastructure play like Blink Charging should be poised for exponential growth.
In that context, even a seemingly insane multiple — over 100x the 2021 Wall Street estimate for revenue — could make some sense.
The problem is that Blink needs to actually win in the market. That seems tough. Blink’s Level 2 charging stations don’t necessarily compete with those of leaders like ChargePoint (NYSE:CHPT). BLNK’s revenue multiple in fact is so high partially because its revenue is so low.
Wall Street expects…
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