Three Pricey Stocks Worth Pondering Over Before Making a Purchase Decision
Three Pricey Stocks Worth Pondering Over Before Making a Purchase Decision
The bull market appears to be thriving, with stock valuations climbing higher for numerous equities. This situation increases the likelihood of investors who continue to buy at peaks encountering issues later if a market correction occurs. As of now, there are several stocks displaying valuations that border on the speculative. At these levels, it becomes challenging to defend their sky-high price tags.
Three trending stocks that warrant extra caution are MicroStrategy (-3.24%), Palantir Technologies (-3.72%), and CrowdStrike (-2.76%). Despite delivering impressive returns to investors, it would be prudent to conduct a thorough analysis before investing in these stocks, considering their inflated valuations.
1. MicroStrategy
MicroStrategy has reaped the rewards of Bitcoin's surge this year, with Bitcoin hitting record prices. The company plans to gather funds to purchase more Bitcoins, which can attract crypto investors. However, this strategy also amplifies the stock's risk.
It's pointless to attempt justifying MicroStrategy's valuation, considering it's trading at more than 4,000 times its trailing earnings. Investors seem to view this as a cryptocurrency rather than a typical growth stock. MicroStrategy boasts a market cap of around $90 billion, which is surprising given that it has generated less than $500 million in revenues over the past 12 months. Given its largely speculative nature, this stock isworth considering only for those prepared to take on substantial risk.Since its inception, the stock price has soared by over 513% up until November. However, beware that the stock might ascend and descend in tandem with Bitcoin. Unless you're ready to assume the potential roller-coaster ride, it might be advisable to stand on the side rather than purchasing MicroStrategy shares.
2. Palantir Technologies
While Palantir's gains of over 300% this year may seem paltry in comparison to MicroStrategy, it still represents a highly costly addition to an investment portfolio. The good news is that the company looks poised for growth with increasing sales and profits, and it's likely to join the Nasdaq-100 soon due to its whopping $150 billion market cap.
Even if it gains acceptance into the Nasdaq-100, it might not take long for investors to lose their enthusiasm for Palantir. Although AI has opened new growth prospects for the company, the stock is currently trading at 145 times next year's estimated earnings – an extravagant valuation for any growth stock. There's no fundamentally-sound metric that can offer a rationale for Palantir's current stock price, which is an indication that speculation is now driving the stock.
While PayPal's valuation isn't as outrageous as MicroStrategy's, investors who purchase shares at current levels risk facing a substantial correction in the near future.
3. CrowdStrike
Cybersecurity firm CrowdStrike has managed to bounce back from the massive data outage that occurred back in July, which initially scandalized investors. Fears of customer dissatisfaction arising from the incident had led to doubts over the stock's future.
However, CrowdStrike managed to allay investors' concerns with its recent results, which saw its annual recurring revenue climb beyond $4 billion for the calendar year ending Oct. 31. During this period, the company also reported $1 billion in quarterly revenue, marking an increase of 29% annually.
The stock price hasn't yet reached its all-time high, but it is currently trading at 80 times next year's earnings. It's clear that speculation is playing a significant role in driving its stock price, as many investors view this as an elite AI stock with immense growth potential due to AI-related cybersecurity threats.
It's true that the cybersecurity landscape may offer significant growth opportunities, but it's challenging to justify such a high multiple for CrowdStrike. Given the premium it commands, investors should be aware that they're already paying for a considerable portion of future growth and should be mindful of the dearth of margin of safety if the company struggles.
- Even with MicroStrategy's impressive returns from Bitcoin investing, its valuation of over 4,000 times its trailing earnings can be challenging to defend. This high valuation is notably driven by its Bitcoin holdings and attracts crypto investors, making it a speculative investment with substantial risk.
- Palantir's sky-high valuation of 145 times next year's estimated earnings raises concerns, despite its growth prospects in AI and potential inclusion in the Nasdaq-100. Speculation seems to be driving the stock price, and there's currently no fundamentally-sound metric to rationalize its current potential bubble.