The stock market is getting a little hot in places. With money flooding back into equities, we need to be wary of overcrowded trades. In other words, let’s not buy stocks just because other people are. Instead, we need to focus on finding value. Today I’m highlighting two stocks that I’m staying clear of at their current prices.
No longer No. 1
Tesla (NASDAQ:TSLA) was once the dominant player in the electric vehicle market. Renowned fund manager Cathie Wood once said Tesla was “in prime position to dominate” the market. That’s no longer the case, with BYD surpassing Elon Musk’s company in terms of delivery numbers.
The Austin-headquartered firm actually saw deliveries fall over the past 12 months. In early April, Tesla announced that it had delivered 386,810 vehicles in Q1 and produced 433,371 vehicles. By comparison, the EV firm delivered a total of 484,507 vehicles in Q4 of 2023 and 422,875 in Q1 of 2023.
This was accompanied by falling margins and smaller earnings.
From an investment perspective, this wouldn’t be an issue if it were trading around 10-20 times earnings. But it’s not. Tesla is trading around 61.2 times forward earnings, and has a price-to-earnings growth ratio of 5.95 — the latter infers that it’s wildly overvalued.
I think the main thing stopping the stock from plummeting is Musk’s announcement that it will unveil its long-awaited Robotaxi on 8 August. I can’t quite work out whether it’s something to be excited about, or a diversion technique.
Robotaxis could deliver a high-margin revenue stream, but everything I’ve read suggests they won’t be on our roads — entirely without a driver — for a decade.
A very conservative stock
Trump Media & Technology Group (NASDAQ:DJT), founded by Donald Trump, is a media and tech company launched in 2021. It went public in March after shareholders voted to take the company public.
Its main platform is Truth Social, a social media app aimed at Trump supporters and other conservatives. Despite some early user growth, it’s entered a highly competitive environment, and as time has shown, it can be very hard to dislodge major media players. The stock has since fallen from around $78 a share to around $32 at the time of writing.
On the plus side, the Truth Social platform has around 1m active monthly users, which is fairly strong. It’s also been fairly successful at developing revenues.
However, with a market cap of $1.9bn, the market is currently valuing each active monthly user at $1,900. That’s very high compared to major media players.
It’s worth reminding ourselves as well that X has struggled to retain advertisers since Musk’s takeover. Truth Social is quite niche, and very conservative. It’s not the type of platform that attracts most companies as advertisers.
