The S&P 500 has bounced back more than 75% from the bear market low set on March 23, and the Nasdaq has more than doubled since its pandemic low. After the defiant bull run, earnings and target price estimates for the S&P 500 are bullish into 2021, but there is substantial talk of a stock market bubble…
Honestly, it makes sense.
The S&P 500 is trading at a historic 36.3 times price-to-earnings (P/E) ratio. That is more than double the average Shiller P/E (16.81) for the benchmark index since 1870. Now that does not mean that we will see a market crash tomorrow. However, what it does tell you is that valuations have become somewhat bubbly.
In a world where shares of Chinese EV maker NIO (NYSE:NIO) have outperformed the S&P 500 by 823.7% in the past year, and an army of traders on Reddit sent GameStop (NYSE:GME) to the moon, you cannot really say the markets are trading on fundamentals. And we haven’t even touched upon the explosive growth in Special Acquisition Purpose Company (SPAC) listings.
Of course, no one can know when a bubble will pop. And overheated markets can get much hotter before finally losing steam.
However, the writing is on the wall. The stock markets are trading at historic highs, and several stocks are severely overvalued at this point. This list provides you with five stocks that are in danger during this stock market bubble. It would be best to take profits from these investments and purchase these stocks later, at a more attractive entry point.
- Square (NYSE:SQ)
- Tesla (NASDAQ:TSLA)
- Airbnb (NASDAQ:ABNB)
- Lemonade (NYSE:LMND)
- Jumia Technologies (NYSE:JMIA)
Stock Market Bubble Companies: Square (SQ)
For all intents and purposes, Square is an excellent investment. The American financial services and digital payments company had an excellent investment time during the pandemic. Total net revenue for 2020 was $9.5 billion, increasing 101% from $4.71 billion in 2019. In addition, gross profit came in at $2.73 billion, a 45% increase over 2019.
Square’s Cash App generated $1.76 billion of Bitcoin (CCC:BTC-USD) revenue during the fourth quarter of 2020, up from $177.6 million a year ago. This is very important. Crypto is on fire and has been for at least a year. Any company related to this sector stands to do very well since the prices of digital assets are escalating at a rapid pace. SQ stock is no different. And its rapid ascent over the last year is has a lot to do with the overall bullish sentiment for Bitcoin.
According to the financial services firm, more than 3 million customers purchased or sold bitcoin on its Cash App. In January 2021, there were over 1 million new customers that made their first bitcoin purchase.
However, due to its proximity with these high growth spaces, the stock is now trading at 133 times forward P/E. Now, shares of the company were always on the expensive side.
It has a five-year average forward P/E of 93.2 times. But the latest bull run has taken it to a completely different level. So if you have some SQ stock, I would suggest taking some profits during this stock market bubble.
Honestly, it’s not even funny anymore.
There have been so many column inches dedicated to Tesla’s overvaluation that at some point, we are just going to have to accept the debate will never go away.
To put things in perspective, Tesla’s vehicle deliveries in 2020 amounted to just under 500,000 units. In 2020, General Motors (NYSE:GM) sold about 6.8 million vehicles. TSLA stock has a market cap of $568.11 billion, GM at $81.24 billion.
It’s important to understand why we are in this position. It has to do broadly with three things. First, Elon Musk’s personality plays a major role in the stock’s ascent. Whether anyone likes to admit it or not, Elon Musk is in some ways the “Steve Jobs of our time.” His persona is essential to the Tesla brand.
Secondly, the EV revolution is in full swing. Although there are varying estimates, mny analysts agree that the oil and gas industry has seen better days. Most of the developed world is working overtime to make sure they have the infrastructure to go all-electric. Although it will take time for emerging economies to catch up, this is a secular trend.
Finally, Tesla is gaining momentum and…
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