According to Wall Street analysts, several of the Nasdaq’s top stocks are still overvalued despite this plunge.
The remarkable rally of the tech-heavy index this year has caused many stocks to skyrocket beyond analyst consensus price targets. CNBC used FactSet’s screening tool to find the companies most overvalued by this metric as of Thursday’s close.
Analysts’ price targets are typically for 12 months into the future and usually involve an upside for stocks, even for equities rated neutral or hold. Some names on the list have exceeded their targets despite having ‘buy’ ratings from over 50% of analysts.
You might want to sell these stocks if you hold them because their prices will likely be lower in the next 12 months.
The Nasdaq stock with the most downside is Tesla. The electric car juggernaut was almost 30% above its price target after a furious run around its stock split. The stock lost 9% on Thursday but gained nearly 3% on Friday to close at $418.32. So the stock is further away from analysts’ target. Tesla is still up 386% for the year.
Is Thursday’s plunge a simple pause of the start of a correction for Tesla? Hard to say. The stock is down 16% since its peak of $498.32 on August 31.
Tesla had not recorded such a correction in three days since mid-March and is dangerously approaching a bearish phase. The stock has a five-year price/earnings growth (PEG) ratio of 3.05. A stock is overvalued if the PEG is above 1, so Tesla’s is too pricey relative to its future growth.
Two popular tech stocks are in the top five. Apple and Adobe lost 8% and 4.9%, respectively, on Thursday. The two companies are up 61% and 47% year-to-date.
Adobe was 12% higher than analysts target on Thursday’s close, while Apple was 6% higher. Apple has a five-year PEG of 2.5, while Adobe PEG’s is 2.3, so the two stocks are expensive.
Many tech stocks are overvalued. As the Nasdaq is mainly composed of tech stocks, it’s more vulnerable to a fall in tech stock prices than the S&P 500 and the Dow Jones. The tech sector has soared too high, too fast, and has formed a bubble. The plunge we saw Thursday might be the beginning of the bubble popping.
Nasdaq is due for an even bigger pullback. Watch the video below:
Two lesser-known stocks also made the top five in the list of Nasdaq stocks with the most downside. Intuitive Surgical and Cintas share prices were 9.5% and 7.5% higher than analysts’ targets, respectively, as of Thursday’s close.
Intuitive is an automated surgery machine maker. Its stock is up 23% for the year but is very pricey with a five-year PEG of 5.4. Cintas is in the uniform rental sector. While its stock is “only” up 22% year-to-date, it’s too expensive as it has a five-year PEG of 3.9.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. Unless otherwise noted, the author has no position in any of the securities mentioned.