The Motley Fool

2 Footsie shares that could lose you a fortune

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.

Road sign warning of a risk ahead
Image source: Getty Images.

Within the bull stock market of recent years, it’s perhaps of little surprise that some companies are overvalued. Investor sentiment has improved dramatically, and the growth prospects of a number of businesses now appear to be fully priced in. As such, it could make sense for investors to sell those stocks in favour of shares which could offer greater upside potential.

With that in mind, here are two companies which now appear to be overvalued based on their future growth prospects.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Improving performance

Reporting on Monday was engineering data and design IT systems provider Aveva (LSE: AVV). The company reported a positive trading performance in the first nine months of its financial year, with an improving growth trend across all reporting regions. There was a particularly good performance in Asia Pacific, with a sharp focus on sales execution a key contributor. There was also a stabilisation of conditions in the Oil & Gas- and Marine-end markets.

The company’s improving performance means that it’s ahead of previous sales expectations for the period. This has helped to improve investor sentiment, with the company’s shares moving as much as 3% higher. News of a contract win with a key Global Account EPC customer may also have helped to push the company’s share price higher on Monday.

A rising share price takes Aveva’s capital gain to 51% in the last year. This puts it on a price-to-earnings (P/E) ratio of 43. Given that it’s expected to report a rise in earnings of 6% this year, and 8% next year, this appears to significantly overvalue the stock. As such, a lack of further growth could be ahead, which may make it a stock to sell at the present time.

Narrow margin of safety

Also lacking upside potential is fellow Software & Computer Services sector company Softcat (LSE: SCT). It also appears to be grossly overvalued given its growth outlook.

Certainly, expectations of a growth rate in earnings of 8% in the current year and next year are higher than for the wider index.  However, after a share price gain of 73% in the last year, the company appears to lack a sufficient margin of safety to merit investment. Its P/E of 24 translates to a price-to-earnings growth (PEG) ratio of 3, which is relatively high. That’s even the case following the FTSE 100’s Bull Run of recent years, with the index and many of its incumbents trading at record highs.

Certainly, Softcat is making good progress as a business. It appears to be delivering on its strategy, and it could report above-average profit growth figures over the medium term. But with investors seeming to be overly enthused about its future, it may be prudent to sell it and invest elsewhere. In this case, a good business does not necessarily equate to a good investment opportunity.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.