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Despite Their Recent Sell-Off, these 4 Tech Stocks are Still Overvalued

Despite Their Recent Sell-Off, these 4 Tech Stocks are Still Overvalued

Posted On January 19, 2022 2:14 pm
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Last year marked an excellent run for the stock market, with the S&P 500 index returning almost 27%, while the Dow Jones Industrial Average and the Nasdaq Composite returned 18.7% and 21.4%, respectively. The prices of numerous stocks also soared to record highs last year. However, the market rally has pushed many stocks to trade at valuations that are not justified by their fundamentals.

Tech stocks have been in the limelight since the COVID-19 pandemic hit. Investors’ interest in tech stocks has led to their prices soaring to way above their intrinsic values.

While the broader market sell-off earlier this year on concerns over looming Federal Reserve interest rate hikes caused high priced tech stocks Roblox Corporation (RBLX – Get Rating), Twilio Inc. (TWLO – Get Rating), Unity Software Inc. (U – Get Rating), and Cloudflare, Inc. (NET – Get Rating) to shed some value, we think they still look overvalued at the current price levels.

Roblox Corporation (RBLX – Get Rating)

RBLX in San Mateo, Calif., develops and operates an online entertainment platform. It offers Roblox Client, an application that allows users to explore 3D digital worlds, and Roblox Studio, a toolset that enables developers and creators to build, publish and operate 3D experiences and other content.

On Jan. 7, 2022, RBLX announced that its Chinese version LuoBuLeSi, published and operated by Tencent, closed down its server on Dec. 8, 2021, five months after launching it.

For its fiscal third quarter, ended Sept. 30, 2021, RBLX’s cost of revenue increased 97.5% year-over-year to $130.01 million. The company’s sales and marketing expenses increased 52.4% year-over-year to $19.59 million. Also, its adjusted EBITDA decreased 15.7% year-over-year to $135.67 million.

In terms of forward EV/S and EV/EBITDA, RBLX’s respective 16.08x and 64.18x are higher than the 2.53x and 9.66x industry averages. Furthermore, its 81.49x forward P/B is 2,827% higher than the 2,78x industry average. RBLX’s EPS for its fiscal 2021 and 2022 are expected to remain negative. The stock has declined 26.6% in price over the past month to close the last trading session at $79.05.

RBLX’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

RBLX has an F grade for Stability and a D grade for Value, Momentum, and Sentiment. Within the Entertainment – Toys & Video Games industry, it is ranked #18 of 22 stocks. To see the ratings of RBLX for Growth and Quality, click here.

Twilio Inc. (TWLO – Get Rating)

TWLO in San Francisco provides a cloud communications platform that enables developers to build, scale and operate real-time communications within software applications. The company offers a customer engagement platform with software designed to address specific use cases, such as account security and contract centers and a set of Application Programming Interfaces.

TWLO’s dollar-based net expansion rate for its fiscal third quarter, ended Sept. 30, 2021, came in at 131%, versus 137% in the year-ago period. Its operating expenses increased 74% year-over-year to $596.96 million, while its net loss increased 91.7% to $224.10 million. Also, its non-GAAP EPS decreased 75% year-over-year to $0.01.

In terms of forward EV/S and EV/EBITDA, TWLO’s respective 12.38x and 137.13x are higher than the 4.06x and 16.55x industry averages Analysts expect TWLO’s EPS for the quarter ending December 31, 2021, to decline 650% year-over-year to $0.22. Over the past year, the stock has declined 44.1% in price to close the last trading session at $215.16.

TWLO’s POWR Ratings reflect its poor prospects. It has an overall D rating, which translates to a Sell in our proprietary rating system. It has a D grade for Value, Momentum, Stability, and Quality. It is ranked last of 16 stocks in the Software – SAAS industry. Click here to check the ratings for Growth and Sentiment of TWLO.

Unity Software Inc. (U – Get Rating)

U operates a real-time 3D development platform. The San Francisco company’s platform provides software solutions to create, run, and monetize interactive, real-time 2D and 3D content for…

 

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