These days, there is a good deal of tech stocks to sell. After all, the days of long-shot tech companies like Virgin Galactic (NYSE:SPCE), Ocugen (NASDAQ:OCGN), and Fubotv (NYSE:FUBO) trading for 20 or 30 times their forward revenue estimates are long gone. Likewise, there are no longer any companies with viable business models, but tons of competition, trading at huge valuations. Among the stocks in the latter category back in the day were Teladoc (NYSE:TDOC), Penn National (NASDAQ:PENN), and DraftKings (NASDAQ:DKNG).
Nonetheless, there are still some tremendously overvalued tech stocks out there. Aside from the crypto names, a few of the pandemic darlings still have much more room to fall. Additionally, a number of other companies that made big splashes in past years are struggling mightily, and their shares will likely fall much further in the coming months and years. For the time being, here is my list of tech stocks to sell or, for risk-tolerant readers, to sell short.
| RBLX | Roblox | $31.70 |
| PTON | Peloton | $12.42 |
| SFIX | Stitch Fix | $3.84 |
| DOCU | DocuSign | $43.75 |
| SOFI | SoFi | $4.34 |
| RIOT | Riot Blockchain | $4.28 |
| MTTR | Matterport | $2.82 |
Tech Stocks to Sell: Roblox (RBLX)
Roblox (NYSE:RBLX) is one pandemic favorite that’s still trading at a stratospheric valuation for an unprofitable company. Specifically, it’s changing hands at a trailing price-sales ratio of 8.33. Analysts, on average, expect its sales to climb 14% in 2023, versus 2022. That’s not bad, but it’s not the kind of very rapid growth that justifies its huge valuation.
Also notable is that analysts’ mean estimate calls for the company’s per-share loss to climb to -$1.75 next year, up from -$1.55 this year. So RBLX is expected to go the wrong way when it comes to profitability.
Roblox is widely viewed as a metaverse play, and leftover euphoria about that phenomenon, likely sparked by the enthusiasm of Meta Platforms (NASDAQ:META) CEO Mark Zuckerberg, probably explains the overdone valuation of Roblox. But as I’ve stated in the past, the metaverse has been around for at least two decades, and it has never become widely popular. I don’t see any signs of that situation changing now.
Tech Stocks to Sell: Peloton (PTON)
Like Roblox, Peloton’s (NASDAQ:PTON) valuation reached truly crazy levels during the pandemic. But now that the fears over the coronavirus have almost completely disappeared, the company’s financial results and its stock have tumbled tremendously. Unlike Roblox, PTON’s current valuation isn’t high on the surface. In fact, the shares are changing hands for just one time its trailing revenue.
However, Peloton’s sales have continued to fall in recent quarters. Last quarter, for example, its revenue came in at $661.5 million, down from $805 million during the same period a year earlier and $678.7 million in Q2.
Meanwhile, its cash burn from operations, although improving somewhat, continues to be very high. In Q3, for example, it burned $203 million of cash, and in the quarter before that, it burned $342 million of cash. As of the end of last quarter, it had $935 million of cash and $2.46 billion of debt. With the company’s business still contracting and rapidly burning cash and its cash only likely to hold out several more quarters, PTON will probably have to issue more shares in 2023 and/or access its revolving $500 million revolving credit line, boosting its interest costs.
In the longer term, if the company’s connected fitness category does meaningfully recover and accelerate, many other players may enter the space, since barriers to entry in the sector are not very high. Given these points, a future bankruptcy is also certainly not out of the question for Peloton.
Tech Stocks to Sell: Stitch Fix (SFIX)
With many apparel retailers, Amazon (NASDAQ:AMZN), and other e-commerce outlets “stepping up their games” when it comes to selling clothing online, competition is clearly taking a huge toll on Stitch Fix (NASDAQ:SFIX). Also not helping is the fact that, compared to many of these players, Stitch Fix’s brand strength and marketing budget are tiny. Additionally, of course, consumers are spending more on experiences and food than in the past, leaving less money for apparel. Finally, many of StitchFix’s rivals are offering sharp discounts.
Put it all together, and the company is having a very tough time.
Earlier this month, SFIX reported that its revenue last quarter tumbled 21.6% year-over-year, while its client base sank 11.3% year-over-year. On a positive note, its operations burned $10 million of cash, down from $39.1 million of cash burn from operations during the previous quarters. Still, SFIX says that it will reduce its marketing spending going forward. That will only worsen its competitive positioning. likely leading to more revenue drops and accelerating declines in its user base.
DocuSign (DOCU)
Like StitchFix, DocuSign (NASDAQ:DOCU) is a once-loved stock that’s now being weighed down by anemic growth, tougher competition, and macro challenges. In a note to investors issued in Oct., Morgan Stanley analyst John Baer downgraded his rating on the shares to “underweight” from “equal weight.” He also cut his price target on DOCU to $47 from $73.
Partly due to macro issues, Baer estimated that the company’s billings would only increase by 3% this year. Moreover, Seeking Alpha reported that, over the longer term, Baer expects “intensified competition and commoditization of its services should put pressure on the company’s pricing structure and limit revenue growth in the coming years.”
On the macro front, I remember that when we bought our house in 2018, we used DocuSign to sign the many documents needed to purchase the house. Therefore, I believe that the tremendous slowdown of the housing market will have a significant, negative impact on DocuSign and DOCU stock. Despite all of its issues, DOCU still has an above-average forward price-earnings ratio of 23.3.
SoFi (SOFI)
Fintech lender SoFi (NASDAQ:SOFI) was hit with bad news last month, as the Biden Administration recently, unexpectedly extended its hiatus on student loan payments until next June. SoFi has said that its financial results have been hurt by the moratorium. Meanwhile, one of the company’s few competitive advantages over most conventional banks was the fact that it offered crypto trading. With that business likely collapsing as cryptos tumble, many of SoFi’s customers may abandon it in favor of their longtime, brick-and-mortar banks.
Additionally, the company offers mortgages, and that business is sure to take a big hit due to the sharp downturn of the housing market. And in a troublesome trend for SoFi — which is not very impactful now but could become more significant in the next year or two — enrollment at four-year colleges is dropping significantly.
“Concerns about student debt and a strong labor market for unskilled workers, and questions about college affordability, particularly at four-year colleges, are…major factors keeping prospective students away from getting a degree, researcher Doug Shapiro told NPR in October.
Despite all of these issues, SOFI stock trades at a fairly high trailing price-sales ratio of 3.1.
Riot Blockchain (RIOT)
Bitcoin (BTC-USD) miner Riot Blockchain (NASDAQ:RIOT) took a big hit from the collapse of Bitcoin prices. Further, many crypto exchanges are going bankrupt and in some cases blocking withdrawals. As a result, many consumers and institutions are afraid to hold Bitcoin, a phenomenon that will probably continue to pressure the crypto’s prices downward for the foreseeable future.
For example, even Tesla (NASDAQ:TSLA), led by crypto advocate Elon Musk, sold 75% of its Bitcoin last quarter. If one of the world’s highest-valued tech companies, led by the world’s richest man, a crypto backer, is selling most of its Bitcoin, many other companies and tens of millions of consumers are probably doing so, too. Also hurting Riot is the rising price of electricity, since of a great deal of electricity is needed to mine Bitcoin.
Despite all of these issues, Riot’s trailing price-sales ratio, which stands at two, is still relatively high.
Matterport (MTTR)
Matterport (NASDAQ:MTTR) has similarities to other names on this list. Like Roblox, its valuation is elevated, probably mostly due to unjustified excitement about the metaverse. In fact, Matterport’s trailing price-sales ratio is a rather steep seven. Similarly to DocuSign, MTTR is poised to be hurt by the real estate slump, since Matterport’s technology is utilized by real estate agents to offer 3D tours of homes.
Meanwhile, MTTR’s loss from operations jumped to $27.7 million last quarter, up from $13.6 million during the same period a year earlier. And that does not include its stock-based compensation of $30.6 million. Large amounts of stock-based compensation tend to weigh on companies share prices. As the real estate slump weighs on Matterport’s results going forward and investors’ metaverse dreams don’t pan out, MTTR stock, which has already sunk 87% this year, is likely to tumble much further going forward.
On the date of publication, Larry Ramer 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.