Trimming the Fat: 3 Overvalued Stocks to Shed Before 2024
An always uncomfortable topic, overvalued stocks to sell arouses intense emotions for understandable reasons. Just like when a sports editorialist criticizes an organization, that’s someone’s team that the writer is blasting. So I get it – there’s not just attachment at play but also money and perhaps a significant amount at that.
Nevertheless, exiting certain ideas isn’t just about protecting your portfolio from toxic enterprises. Rather, some companies that have garnered a red flag do so not because they’re terrible. Instead, they just might be overvalued stocks. Especially amid a questionable market and economic backdrop, it might not make sense to hold onto potentially extended ideas.
Of course, you don’t want to take my word for it, which is why I’m bringing the data to back up my concerns. With that, below are overvalued stocks to sell – or at least consider doing so ahead of the new year.
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Trade Desk (TTD)
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As you can see from a cursory look at the charts, Trade Desk (NASDAQ:TTD) has been an outperformer. Since the beginning of this year, TTD gained a very impressive 51% of equity value. In the trailing five years, shares skyrocketed almost 457%. Specializing in real-time programmatic marketing automation technologies, Trade Desk offers relevance for how the modern audience consumes content.
To be sure, because of its robust performance, an argument can be made that the fading of shares since the end of July represents a discount opportunity. However, it may in reality be one of the overvalued stocks to sell. Yes, Trade Desk prints a three-year revenue growth rate of 31.7%, which is impressive. However, if you compare the trailing 12-month (TTM) revenue to 2022’s tally, we’re talking about 16% expansion.
That’s a conspicuous contraction of the prior growth trek. With that, you must factor in the trailing-year revenue multiple of 18.54x and its forward earnings multiple of 64x. Both stats rank way up there for the underlying industry. I may be on the wrong side of the trade here because analysts love it. But I’m not loving the high premium for the fading data.
MicroStrategy (MSTR)
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I’m going to get heat from the cryptocurrency community for even mentioning MicroStrategy (NASDAQ:MSTR) in the context of overvalued stocks to sell. If you want to continue the conversation, you’re free to do so via my X account. Surely, on paper, MSTR is hardly a name to avoid. After all, since the beginning of the year, MSTR gained over 235% of equity value.
How can I not love this enterprise? Well, here’s the deal. As Bloomberg pointed out, MicroStrategy once represented a struggling software company. However, current company Chairman Michael Saylor decided to effectively turn the enterprise into a proxy for the benchmark crypto. Since then, MSTR understandably garnered plenty of attention. Unfortunately, my concern is that crypto proxies – such as blockchain miners – feature wild ebbs and flows.
If you look at MicroStrategy’s financials, you’ll notice that it has basically flatlined around $500 million annually. And in recent years, it absorbed losses. And in part because of MSTR’s incredible performance, it’s way overvalued. We’re talking a forward earnings multiple of over 169x. That’s just too much.
TFS Financial (TFSL)
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As a regional bank, TFS Financial (NASDAQ:TFSL) attracted plenty of attention but not necessarily for a good reason. Earlier this year, the company suffered from the sector banking crisis that affected the regional players disproportionately. Since then, some evidence indicated that many such players got healthy again. Unfortunately, the latest news suggests that regional banks may continue to face pressure relative to their larger peers.
In fairness, TFSL doesn’t look that ugly in the charts. Since the January opener, shares lost a bit more than 5%, which isn’t bad considering the circumstances. Also, in the trailing one-month period, TFSL moved up almost 22%. However, that could also be a signal for contrarians that it may be on the path to becoming one of the overvalued stocks to sell.
While the company saw interest income explode higher, interest expense also shot up. Therefore, the company’s fiscal 2023 revenue was strong relative to last year but not outrageously so. Further, you must pay a heavy premium for TFSL, which trades at a price/earnings-to-growth (PEG) ratio of nearly 46X, worse than nearly 99% of its competitors.
On the date of publication, Josh Enomoto did not have (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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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