Overvalued stocks can be quite ruinous for portfolios. Even solid companies with high valuations can come crashing down if they don’t meet lofty expectations or if the market’s confidence wanes. Internet infrastructure provider, Fastly (NASDAQ:FSLY), is one example of this. In 2020, many in the IT sector loved the company’s offerings, and Fastly’s sales were growing rapidly. I recommended and bought these shares, despite their high valuation. Ultimately, FSLY stock collapsed due to a system outage and the tech stock crash. It tumbled from a high of nearly $129 in October 2020 to just $12.85 in January 2021. Of course, firms with poor products and absurdly high valuations can suffer even worse fates. Here are three extremely expensive stocks to sell for those who want to avoid disaster.
CrowdStrike (CRWD)
CrowdStrike (NASDAQ:CRWD) is a premiere, rapidly growing cybersecurity company. Indeed, the company’s top line soared 36% last year to $3 billion.
However, the firm actually generated an operating loss of $2 million in 2023, and the shares have a stratospheric forward P/E ratio of 82.6 times.
Analysts, on average, expect the company’s earnings per share to climb 26% this year to $3.91. While 26% growth is impressive, it does not justify CRWD’s current valuation. Especially given the firm’s negative operating income last year.
CrowdStrike’s president, Michael Sentonas, actually sold 22,123 of the shares himself on January 16. He obtained about $6.3 million from the transaction.
Given the company’s large valuation, and the fact that Sentonas sold so many shares, I think that CRWD belongs on this list of expensive stocks to sell at this point.
Coinbase (COIN)
Many Coinbase (NASDAQ:COIN) insiders have been selling large amounts of COIN stock, showing a lack of confidence in the company’s outlook.
In fact, the company’s fourth-quarter earnings call began with shareholders questioning why insiders continued to sell their shares on a daily basis. The question was chosen based on the “upvotes” received from shareholders, determined by the number of shares that voted in favor of each query.
Seeking Alpha recently reported that, “Over the last three months, there (were) 86 insider trades, with 16 open market buys and 70 seller trades.”
Also noteworthy is that in November, Coinbase notified an undisclosed number of users about a subpoena that was sent to the firm which could force it to send data on its users to the Commodities Futures Trading Commission. This news could be detrimental to Coinbase’s user count.
COIN stock has a large forward P/E ratio of 232 times.
Reddit (RDDT)
Social media giant Reddit (NYSE:RDDT) has a huge amount of potential, given its large user base, and the fact that its top line jumped an impressive 21% last year. Moreover, the firm should benefit a great deal from the resurgence of ad spending that’s occurring now as companies become more optimistic about the economy and much less fearful about a recession materializing.
Still the firm generated a rather sizable operating loss of $140 million last year, while its shares have a high price-sales ratio of nearly 12 times.
Moreover, Reddit has not been in the black since 2005, and it, of course, has to compete with many huge, very powerful players for ad dollars. Obviously I’m talking about Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), Meta (NASDAQ:META) and Amazon (NASDAQ:AMZN).
On the date of publication, Larry Ramer held a short position in COIN and put options on COIN which expire in March 2025. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.