Want to retire before 65? Here are 2 overvalued shares I would avoid

These two stocks appear to be overpriced given their growth prospects.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

With the FTSE 100 trading close to 8,000 points at the present time, it’s perhaps unsurprising that a number of shares are beginning to look overvalued. After all, investors are in bullish mood and, in some cases, they’re factoring in growth potential over a long-term time period. This means there may be a lack of capital growth potential over the medium term.

With this in mind, here are two shares that may be worth avoiding at present. Neither seems to offer the best opportunity to help you generate high returns so that you can retire before 65.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Positive outlook

Reporting on Tuesday was provider of high technology products and systems for industry and research, Oxford Instruments (LSE: OXIG). The company’s results for the year to 31 March saw it deliver adjusted profit before tax growth of 34.3%, to £42.3m from £31.5m in the previous year. And with its reported order book of £134m, 5% higher than at the same time last year, it seems to be in a strong position to deliver further growth.

The company’s current strategy seems to be performing well. It has invested heavily in research and development, while transitioning to a more commercially-focused operation as it seeks to address a broad range of industrial and academic markets.

Looking ahead, Oxford Instruments is expected to report a 5% rise in earnings for the current year, followed by further growth of 7% next year. While impressive, this rate of growth appears to have been fully factored in by the market, with the stock trading on a price-to-earnings growth (PEG) ratio of 3.6. As such, it seems to be a stock to avoid, despite its improving financial performance.

Uncertain outlook

Also seemingly overpriced at the present time is accounting and payroll software specialist Sage (LSE: SGE). The company’s share price has been volatile in recent months, with it warning in April that sales for the current year would be lower than previous guidance. Its operational execution, as well as a slowdown in its French business, have caused challenges in the recent past, with investor sentiment declining in response.

Still, the stock has a price-to-earnings (P/E) ratio of around 23 at present. This is despite a reduction in its growth outlook, with the stock now expected to report a rise in earnings of 8% in each of the next two financial years.

Clearly, Sage has a solid track record of growth. Its business model, while evolving towards a subscription-based focus, has remained robust in recent years and this has allowed it to generate positive earnings growth in each of the last five years. However, with a high valuation and a narrow margin of safety, it appears to be another company to avoid at the present time.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »