3 Growth Stocks to Sell in January Before They Crash and Burn
Growth stocks rebounded nicely in 2023 after a disappointing 2022. However, some growth stocks overextended themselves and look due for corrections in 2024. Other growth stocks have weakening fundamentals and questions surrounding future growth initiatives.
Not every growth stock pans out, and an investment that may have looked great a few years ago may not be up to par today. If you haven’t checked your portfolio in a while and assessed your picks, it may be time to reevaluate your positions. These are three growth stocks you may want to sell before the year progresses.
Zoom (ZM)
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Zoom (NASDAQ:ZM) is an online video conferencing platform that makes it easy for people to connect worldwide. Businesses can use the platform to run virtual events and webinars to interact with potential customers. The company generates its revenue through subscription plans.
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Although the company has made great strides with its net income growth, revenue growth remains a strong concern. Revenue is a ceiling that limits how high net income can go. Net income reached $141.2 million in the third quarter of 2023. That’s almost triple what the company made during the same period in 2022.
Although net income growth makes the stock look intriguing, 3.2% year-over-year (YoY) revenue growth is nothing to get excited about. Zoom is down by roughly 90% from its all-time high during the pandemic, and I don’t see how Zoom stock can reclaim that price point.
The positive highlight from the company’s earnings report is a 13.5% YoY increase in the number of customers paying Zoom over $100,000 per year for its software and solutions.
The net income growth is unlikely to continue since Zoom can’t back it up with high revenue growth. The next two quarters are easy layups for the company since net income was much lower. However, future quarters will have more difficult benchmarks.
Carvana (CVNA)
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Carvana (NYSE:CVNA) was another winner during the pandemic that lost a lot of steam. Although shares rallied by more than 500% over the past year, the stock is almost 90% below its all-time high.
The auto retailer was bid up as if it were a tech company. However, the company endured several unprofitable quarters for investors. Even worse, revenue is decreasing. The company’s revenue fell by 18.1% year-over-year in the third quarter of 2023. That’s not what any growth investor wants to see in a long-term investment.
The auto market isn’t doing too well either with the prices of used cars starting to fall. Demand is contracting, which should continue to hurt Carvana’s revenue and earnings. Investors seem to have gotten a lucky opportunity in 2023, but people are noticing. The stock has dropped by 12% year-to-date.
Investors can find plenty of tech companies — actual tech companies — with better financials. Carvana faces several headwinds for a business model that depends on investors’ capital to survive.
Zillow (Z)
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Zillow (NASDAQ:Z) is a real estate listing website connecting buyers with sellers. The company also offers home loans and connects tenants with landlords. The real estate firm saw its stock price peak during the pandemic boom before tumbling by over 70%.
The company is unprofitable and can face more challenges in the current real estate market. Interest rates remain elevated, and people are staying in their homes instead of selling. Housing and renting prices both remain high and will reduce demand. This cycle is likely to result in more people renting than buying homes.
The significant slowdown in revenue growth is a major concern for long-term investors. Zillow only increased its revenue by 3% in the third quarter of 2023. Residential revenue and mortgage revenue both decreased YoY and made up 77.8% of the company’s total revenue. Rentals revenue increased by 34% YoY but wasn’t enough to generate meaningful growth.
After rising by 24% over the past year, Zillow is due for a correction. High revenue growth is a prerequisite for commanding a strong valuation. The current real estate market doesn’t suggest a quick rebound for Zillow’s financials.
On the date of publication, Marc Guberti 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.
Marc Guberti is a finance freelance writer at InvestorPlace.com who hosts the Breakthrough Success Podcast. He has contributed to several publications, including the U.S. News & World Report, Benzinga, and Joy Wallet.
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