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Five Most Overvalued Stocks Right Now

Five Most Overvalued Stocks Right Now


Five Most Overvalued Stocks Right Now

Five Most Overvalued Stocks Right Now

We continue the topic of overvalued stocks against one of the most memorable rallies in the S&P500 index in the November-April time interval. Let us remind you that the index grew by 25%. And some studies predict at least a temporary stock market decline in May in such cases.

Today we will share insights into the most overvalued mega-cap stocks on the American stock exchanges. Regardless of the broader market direction, these stocks are definitely worth watching.

Before moving on to the list, let’s approach the method. We study the historical data of the company’s P/E ratios to place the company’s value on a scale relative to its own average level, taking into account the current price and net income over the last 12 months. Today’s list will include only companies whose price multiplied by earnings per share will give a price-to-earnings ratio that has not been observed for any given company for 5 years. However, assessing value is only the second step in determining the viability of an investment in our investment decision strategy.

The first stage is a comprehensive assessment of financial performance and position as well as a valuation of the business growth sustainability and profitability. As a result of comparing figures from the earnings reports with ideal conditions according to 10 parameters, we obtain a final score called the Eyestock Rating. If it is equal to or greater than 100%, it is a healthy and profitable company with no obvious weaknesses or threats to the business, in which we invest primarily. Backtest data shows that the annual percentage yield of such investment exceeds 21% against the market return of 13.7%.

If the rating is below 50 points, it means that the company, judging by its financial reports, has really huge problems. This does not mean that the company`s stock prices should immediately begin to decline, but it does indicate an extremely significant risk of holding its shares and a much lower average yield — only 8.5%.

In the last article, we simply showed overvalued stocks, and today we will share our list of the most overvalued companies with low ratings of business performance by Eyestock view. Let’s start right away with the top 1.

Super Micro Computer Inc (SMCI)
SMCI stock is trading 64% higher than its maximum value

Super Micro Computer relative valuation

This winter we analyzed the company’s report in detail. To briefly summarize, there are 2 problems. The first is a significant negative cash flow from operating activities associated with the sharp growth of the company’s inventories. A negative cash flow of $600m affects our analysis, bringing down the SMCI rating from 100% to 48%. On April 30th we will receive a new report and see how the situation develops.
The second is the current value. The market is super positive for Super Micro, and the current price-to-earnings ratio is 70 with the median over the last 60 quarters of just 15. The stock is now 78% higher than the average and has surpassed even its top net earnings estimate by 64%. If the report does not exceed analysts’ expectations of record quarter earnings of more than $4B, and earnings per share are less than $6, the stock could show serious negative dynamics.

Super Micro Computer announces its quarterly report on April 30

Check more dates at Eyestock Earnings Calendar.

Dell Technologies Inc (DELL)
DELL stock is trading 24% higher than its maximum value

The technology hardware operator’s rating has never exceeded 50% on our scale, and now it is only 17% with a close to 100% probability of remaining the same low at the end of the next report. DELL share is an excellent example of a bubble where the company’s capitalization has increased 5 times since Covid, while net profit has remained almost unchanged! Naturally, this brought the price-to-earnings ratio to a historical record of 27, while back in 2020 the company was worth 4 of its annual net profits. Is Dell waiting for a breakthrough? Or is it a huge bubble? By our valuation, it is one of the weakest and most overvalued stocks today.

DELL analysis and valuation

Cigna Group (CI)
CI stock is trading 14% higher than its maximum value

Cigna net profit dynamics 2019-2023

Cigna stock is the first of 3 healthcare sector representatives in today’s research. For 5 years, the company has made no progress in generating profits, generating cash flow, or improving profitability. However, every quarter, the value of each dollar earned goes up. This results in a kind of inflation of market valuation. Is this fair? We do not think so.

Merck & Co Inc (MRK)
MRK stock is trading 13% higher than its maximum value

One of the largest and oldest pharmaceutical companies surprised investors at the end of its 2023 report by allocating exactly half of its revenue to further research and development.

MRK annual report

More precisely, if you follow the link to the report, you can see an explanation of the $30.5B expenses:

«Research and development (R&D) expenses were $30.5 billion in 2023 compared with $13.5 billion in 2022. The increase was primarily due to higher charges for business development activity in 2023, including charges of $10.2 billion for the acquisition of Prometheus, $5.5 billion related to the formation of a collaboration with Daiichi Sankyo and $1.2 billion for the acquisition of Imago, compared with charges of $690 million in aggregate recorded in 2022 related to collaboration and licensing agreements with Moderna, Orna Therapeutics and Orion. The increase in R&D expenses was also attributable to higher development spending, including for recently acquired programs, and higher compensation and benefit costs (reflecting in part increased headcount). The increase in R&D expenses was partially offset by lower intangible asset impairment charges in 2023.«

In our opinion, this indicates the company’s weak competitive advantages in the battle with such huge performers as Novo Nordisk or Regeneron. And Merck stock’s current P/E ratio with almost zero profit is indecent to say out loud (964).

HCA Healthcare Inc (HCA)
HCA shares are trading 11% higher than their maximum value

With negative shareholders’ equity and debt of $40B, the company simply had no chance of getting even an average rating according to our system. However, such a black hole does not deter speculators, who have driven HCA’s stock price up 20% this year. The negative PEG ratio, which takes into account valuations and business growth rate, supports our view that this story is grossly overvalued and risky.

Beyond Bias: Eyestock Delivers Clear, Objective Investment Insights.

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