One of the dangers of investing right now is that there are many high-priced stocks out there. Even though a business may be doing well, paying a high price to own a piece of it may not be a good idea, as it could limit your returns — or worse, you could actually incur a loss on it…
Ignoring earnings multiples and valuations can be a surefire way to put your portfolio in harm’s way. And three stocks that are incredibly overvalued right now and that you should be extremely careful with are GoodRx (NASDAQ:GDRX), Twitter (NYSE:TWTR), and Carnival (NYSE:CCL).
GoodRx’s business makes it easier for consumers to buy prescriptions at lower prices. But the problem is that the company doesn’t have a strong competitive advantage that can keep rivals at bay.
GoodRx’s lack of an edge is especially concerning given one of its competitors may end up being Amazon (NASDAQ:AMZN). The tech giant is going deeper into healthcare, recently launching telehealth services in addition to its pharmacy business. With its deep pockets, Amazon could undercut competitors and make it hard for GoodRx to generate long-term sales growth. Amazon advertises that Prime members who pay without insurance can save up to 80% on medication through Amazon Pharmacy.
And GoodRx already has enough problems of its own to worry about, incurring losses in each of its last two quarters. Although it grew its sales in 2020 by 41.9% to $550.7 million, it is spending a staggering amount of money on selling, general, and administrative (SG&A) expenses. Expenses of $716.6 million represented 130% of revenue. And if there is an increase in competition, that percentage could climb even higher.
GoodRx’s forward price-to-earnings (P/E) multiple of more than 110 is obscene, and puts it at a high valuation regardless of which industry you are investing in. Even though the stock is down 19% over the past year and has underperformed the S&P 500 (which is up 24%), I wouldn’t be surprised to see its shares fall even further, as there are still many question marks in GoodRx’s future.
Another stock trading at a hefty premium is Twitter. Its forward P/E of 74 is now even higher than Amazon’s multiple, which is just over 69. And fiscal year 2020’s sales of $3.7 billion weren’t all that impressive for the social media company, as its top line grew by just 7.4% from 2019 — hardly the numbers you would expect when you are paying such a steep premium for a growth stock. And to make matters worse, its operating expenses grew at an even higher rate of 19.3%.
While Twitter may think adding “Super Follows” to charge followers for content and moving more toward a subscription model will help its bottom line, I’m not convinced it will work in the long term, as it could…
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