As the stock market enjoys a relentless rally, raising various indices to unprecedented highs, the landscape is dotted with overvalued stocks ready for a correction. The lofty valuations pose a threat to investors, signaling potential selloffs in the near future. The Nasdaq, being a bustling hub of trading activities, is home to its fair share of pricey equities that investors should consider jettisoning.
In bull markets, expensive stocks, like the ones we’re about to delve into, are not uncommon. While it may sound like an alarmist call, it serves investors well to continuously assess their investment choices and exercise caution to avoid relinquishing hard-earned gains back to the market.
The following stocks have joined the ranks of the excessively pricey. It might be prudent to part ways with these inflated Nasdaq stocks before their prices come crashing down to reality.
MongoDB (MDB)
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MongoDB (NASDAQ:MDB) introduces a novel management platform that upends traditional relational databases, catering to large distributed data sets. Its architecture allows users to manage document-oriented information efficiently without the constraints of a predefined schema, enabling the construction of databases at scale.
Despite MongoDB’s innovative pivot from legacy database structures, its success hinges on enticing customers to migrate to its platform. The company faces a challenge in sustaining robust growth if competitors like Amazon Web Services replicate its offerings, diluting its competitive edge.
Undoubtedly, MongoDB has been on a tear, boasting robust stock performance in recent times. Financially, the company paints a relatively positive picture with a noteworthy 31% year-over-year revenue surge propelled by escalating subscription and service revenues.
However, the outlook for MongoDB’s fiscal 2025 appears lackluster. Anticipating a high-end revenue growth rate of around 15% is stark. Notably, the company is still grappling with net losses, indicating that a slowdown in revenue growth could hinder its path to profitability. As rivals continue to make strides in their offerings, MongoDB faces a strenuous road ahead. With a forward P/E ratio of -136, MongoDB stands tall as one of Nasdaq’s priciest stocks, warranting a second thought from investors.
Illumina (ILMN)
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Famed for its expertise in genome analysis, Illumina (NASDAQ:ILMN) stands as a leading manufacturer of cutting-edge medical equipment and technology, primarily operating in two key segments:
- Core Illumina: Providing genomic solutions for research and practical applications
- Grail: Specializing in early cancer detection
The acquisition of Grail has cast a long shadow on the company’s stock performance. Following an antitrust lawsuit defeat against the FTC, Illumina intends to divest Grail by Q2 of 2024.
The Grail saga has dealt a severe blow to the company, leading to a EUR 432 million fine for proceeding with the merger before receiving approval from the E.U. Commission.
Looking back on the full year, Illumina’s performance was a mixed bag. FY ’23 witnessed a 2% year-over-year dip in revenue, culminating in a GAAP diluted loss per share of $7.34 attributed to the Grail segment.
Currently trading at an astronomical 147 times its earnings, with a stagnant revenue projection for FY ’24, Illumina faces the prospect of restrained growth and an exorbitant valuation. With its lofty price tag and the high-risk entanglement of the Grail segment, Illumina finds itself perched among Nasdaq’s costliest stocks, beckoning for a graceful exit from investors.
DoorDash (DASH)
The Dilemma of DoorDash (DASH) Amidst Fierce Competition and Financial Fluctuations
The Competitive Landscape
DoorDash (NASDAQ:DASH) has established itself as a prominent e-commerce platform that seamlessly connects restaurants, dashers, and customers, transforming the way orders are processed while offering a skip-the-line convenience. However, the company faces fierce competition from Uber Eats, Lyft (NASDAQ:LYFT), and Grubhub.
Financial Performance: A Closer Look
Financially speaking, DoorDash has showcased impressive growth, with a 27% increase in revenue year-over-year, achieved an all-time high in EBITDA, and witnessed a 23% rise in total orders. On the surface, these numbers might sound promising, enticing investors with a glimpse of potential profitability.
Challenges Ahead: Deeper Analysis
Yet, a closer examination reveals a different picture. The company faced a net loss of $156 million, resulting in a negative $1.43 EPS. What’s more, the forward P/E ratio indicates DoorDash stock is currently trading at an eye-watering 673.05x its forward P/E, raising eyebrows among cautious investors.
Moreover, the looming issue of potentially reclassifying dashers as full-time employees, thereby making them eligible for overtime pay, minimum wage, and health benefits, stands as a significant threat to DoorDash’s bottom line. If these regulatory changes come to pass, they could significantly impact the company’s revenue and escalate operational costs, further clouding its financial outlook.
Risks and Uncertainties
Compounding the situation is DoorDash’s lack of free cash flow and its relatively short operating history, leaving it susceptible to market turbulence and investor apprehension. The regulatory risks coupled with the prevailing market headwinds dictate a cautious approach for shareholders, urging them to carefully weigh the potential downsides of holding onto DoorDash stocks.
On the date of publication, Rick Orford 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.
