However, after digging into the following pair, I’m going to avoid them. Here’s why.

Trump Media

The last time I looked at Trump Media & Technology Group (NASDAQ:DJT) in November 2024, I was very bearish. Back then, the owner of social media platform Truth Social traded for $31, which put the stock on an obscene price-to-sales (P/S) ratio of 1,000+.

Fast forward to now, Trump Media stock has crashed 64% to $11.30. Yet the P/S multiple is still 737!

In essence, this means that investors are paying $737 for every $1 of revenue the company generated over the previous year. Typically, this would indicate that the business was growing tremendously.

In Q3, however, revenue actually declined 4% year on year to $973k, while the net loss ballooned to almost $55m, including $20.3m in legal expenses. For the whole of 2024, Trump Media reported just $3.8m in revenue and a $401m net loss.

Now, to be fair, the company has diversified its business since I last looked at it. There’s a Truth+ streaming channel, which offers “non-woke movies, live TV, Christian content, and more“, and it has got into crypto.

But a big red flag for me here is that the company doesn’t disclose standard platform industry metrics like daily active users. So it’s hard for investors to track engagement, adding significant uncertainty.

That said, Trump Media earned $15.3m from Bitcoin-linked option premiums and $13.4m in interest income in Q3. And this suggest the firm’s crypto assets are now more relevant than the social media platform.

Either way, this is a speculative share I’m not going anywhere near.

Palantir

The second stock — Palantir Technologies (NASDAQ:PLTR) — is a different beast altogether. It’s up nearly 1,000% since the start of 2024!

The software/data analytics giant has no growth problems, with Q3 revenue skyrocketing 63% to $1.18bn. Net income of $476m represented an incredible 40% margin.

Due to insane AI-related demand, Palantir is now generating more profit in a single quarter than it did in revenue just three years ago.

Looking ahead, strong growth is expected to continue, with the firm’s customer count jumping 45% in Q3. Blue-chip customers tend to spend more and more with Palantir as the years go by.

In the United States, our commercial business…is an absolute juggernaut. And we believe that it will become, on its own, one of the most significant business stories of the century in American economic life. Palantir CEO Alex Karp.

Stepping back then, it’s hard to be anything other than impressed with this business. My issue is that the stock’s price-to-sales multiple is currently 118. The forward price-to-earnings ratio is 182.

Unfortunately, I can’t risk investing at this price. In reality, it offers virtually no margin of safety if growth even slightly underwhelms.

So, while the company is great, the stock appears extremely overpriced to me.

Foolish takeaway

In terms of quality, these two shares are worlds — or even universes — apart. But they share one thing in common — they both look significantly overvalued.

Fortunately though, there are plenty of other attractively-priced opportunities in the stock market today.

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As a reminder, a correction is a drop of 10-20% from a recent peak, while a crash is basically a much more dramatic fall (a hard reset, essentially).

Crashes are notoriously difficult to call, so it’s pointless trying, in my opinion. But I’ve been wondering if a correction is in the works after a recent Uber trip. Let me explain.

Shoeshine boy indicator

In 1929, at the end of the Roaring Twenties, Joseph Kennedy (father of JFK) was working as a Wall Street stockbroker. According to legend, he sat down for a shoeshine one day, and while polishing his shoes, the young boy started giving him stock picks.

Kennedy reasoned, correctly as it turned out, that it was time to get out of the market if a shoeshine boy was openly dishing out advice. Speculation must have reached a peak.

Shortly after, the stock market entered a free fall, making Kennedy a fortune (he’d betted against it).

This informal signal — now known as the ‘shoeshine boy indicator’ — is seen as a cautionary signal that markets might be overheating.

Bullish Uber driver

I was reminded of this story recently in a taxi when an Uber driver went from talking about Trump’s election victory to owning shares of Trump Media & Technology Group (NASDAQ: DJT). This is the parent company of Truth Social, the alt-tech social media platform.

He’d bought a load of Trump Media shares a few weeks before the election and was sitting on some nice paper profits. I suggested he might want to crystallise some gains, especially as it was the only stock he owned.

But he was adamant he was holding on because Trump’s presidency would lead to millions more users flocking to the platform in future. And that would make it more attractive to advertisers. The stock would go up further, he assured me.

Perhaps he’s right. However, the firm generated just $2.6m in revenue in the first nine months of 2024, while racking up a net loss of $363m. The price-to-sales ratio is an insane 1,000!

In other words, Trump Media is a meme stock. And this was the first such everyday conversation I’ve had since 2021, at the height of the last meme stock craze.

High valuations

Now, Trump Media stock isn’t in the S&P 500, and is very unlikely to ever join the index because of its steep losses and poor record of growth. But it highlights to me how overvalued many US shares are today.

Unlike Kennedy however, I won’t be selling all my holdings and I don’t short (bet against) stocks. I see no evidence that an epic crash is on the horizon (again, those are unpredictable).

Yet the S&P 500’s price-to-earnings ratio isn’t far off 30 — a historically high multiple. So if the index heads even higher in early 2025, I’ll start keeping more powder dry.

If a correction does happen next year, there might be some lucrative buying opportunities for my portfolio.

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Limited potential

First off, let’s talk about what the company actually does. It operates Truth Social, a social media platform launched by former US President Donald Trump. While it’s garnered attention due to its famous founder, the business fundamentals are, shall we say, less than stellar.

Looking at the numbers, it’s hard not to wince. In its most recent earnings report, the company posted revenue of just $3.43m. That’s million with an ‘m’, folks. Yet, somehow, this company is sporting a market cap of over $4bn!

But wait, it gets worse. That meagre revenue came with a net loss of $379m. You read that right — the company is losing more than 100 times what it’s bringing in. That’s not the kind of maths that gets me excited as an investor.

Now, you might be thinking, ‘But it’s a growth stock! It’s all about future potential!’ Well, about that… The company’s revenue has actually declined by 9.2% over the past year. That’s not the kind of trajectory I like to see in a supposed growth story.

Let’s not forget about the volatility. With a beta of 5.98, six times as volatile as the market, this firm is about as stable as a house of cards in an earthquake. The shares have been swinging wildly, which might be fun for day traders, but it’s enough to give long-term investors like myself a serious case of vertigo.

There’s also the small matter of insider selling. Recently, the company had to repurchase shares from executives to cover a hefty tax bill. While the details are a bit murky (never a good sign), it’s clear that some insiders are heading for the exits.

The future

Looking ahead, there are storm clouds on the horizon. A major ‘unlocking’ event is coming up in September, when a large number of shares will become available for trading. This could lead to significant selling pressure and potentially drive the shares down.

And let’s not forget the broader context. The company is embroiled in multiple lawsuits, many involving the very people who helped bring it to market. That’s hardly a recipe for smooth sailing.

Now, I’m not here to make political judgments. But as an investor, I’m looking for solid businesses with strong fundamentals and clear paths to profitability. Trump Media & Technology, despite its headline-grabbing nature, falls short on all these counts for me.

Not for me

So, while the shares might be up 31% this year, I’ll be steering well clear. There are plenty of other fish in the sea — ones with actual revenue, growing user bases, and business models that make sense. As for me, I’ll stick to companies that don’t make me feel like I need a stiff drink every time I check the financials.

Remember, Fools, just because the shares are going up doesn’t mean it’s a good investment. Sometimes, the wisest move is to watch from the sidelines and keep looking.

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However, there will be some that I’d rather just steer clear of, for whatever reason.

Here are two such stocks right now.

Competition concerns

First up, we have boohoo (LSE: BOO). The fast fashion company grew tremendously both before and during the pandemic.

However, the share price has fallen off a cliff since. It’s now down 85% in five years. Ouch!

On its website, boohoo says its “vision is to lead the fashion e-commerce market globally“.

The problem is it’s not. After reportedly doubling its profits to more than $2bn last year, Shein looks to be leading that particular category. Its profit is almost what boohoo generated in total revenue last year!

Oh, and it looks like Shein will soon go public and raise a massive war chest. That should enable it to carry on selling tops and dresses for a couple of quid each for years.

Meanwhile, boohoo reported in its last financial year (which ended 29 February) that its revenue fell 17% year on year to £1.5bn. And its pre-tax loss widened to £159.9m from £90.7m the year before.

Now, fast fashion trends can change, well, fast. So perhaps customers will start ignoring all that choice and cheapness on offer from Shein and flock back to boohoo’s platform.

Also, Shein sends goods directly to shoppers from China, which reportedly attracts fewer UK taxes. Any closing of this loophole could level the playing field for the likes of boohoo.

If so, then the share price could rebound massively from the 34p it’s at today.

However, I’m not willing to put my money on that potential turnaround.

Meme stock madness is back

We’re seeing a big rise in stock market speculation again, in my opinion.

For evidence of this, look no further than Trump Media & Technology Group (NASDAQ: DJT). This is the parent company of Donald Trump’s alternative social network, Truth Social.

Its share price is up 62% in the past month!

That’s what I might expect to happen if a company posts incredible revenue and profits growth. However, that’s not the case here. Trump Media lost $58.2m last year on net sales of just $4.1m.

This puts the stock on a surreal price-to-sales (P/S) ratio of more than 1,100. For context, a P/S multiple of 10 would normally make me a bit nervous about investing in a stock.

Another thing that worries me here is that the company doesn’t use standard key performance indicators (KPIs) associated with social media companies. These would include total user numbers and average revenue per user (ARPU).

Without these metrics, investors are really in the dark about how to track progress (or otherwise). For me, this is another giant red flag.

Of course, if Donald Trump wins the upcoming election, there could be a spike in users signing up to the Truth Social platform. That might send the share price higher. So there’s that.

But buying the stock for this reason seems more like gambling than investing to me. So I wouldn’t touch it with a 10-foot pole.

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In 37 years of investing, I’ve broken these rules often. But following Buffett’s Rule #1 has steered me clear of some awful businesses. For example, here are two companies that I’d shun today.

1. Trumped-up valuation

Former US president Donald Trump now has a stock market-listed business: Trump Media & Technology Group Corp (NASDAQ: DJT). This group went public on 26 March 2024 after merging with a listed special-purpose acquisition company.

Trump owns 57.6% of this social-media company, so buyers of its stock tend to be among his most avid fans. However, I find this businessman and his behaviour disagreeable.

Even putting my doubts about Trump aside, this group looks like a dumpster fire priced at a laughable valuation. In its latest full-year results, TMTG lost $58.2m on revenue of $4.1m. To me, this resembles a firm heading for failure.

At its opening-day peak, this ‘Trumped up’ share price hit $79.38, before plunging. On Monday, 15 April, it hit a low of $26.25 — down 66.9% from its high — before closing at $26.61. Even after this collapse, TMTG’s valuation is $3.6bn.

Nothing could convince me to buy stock in such an overhyped company. This meme stock is largely a dream stock for fervent Trump supporters. Frankly, I’m not interested in buying into this latest example of ‘Tulipmania’.

In the interest of balance, I could be wrong. Trump’s Truth Social social-media app might eventually become the #1 platform for Republican voters. And there are a lot of them. Advertising and other revenues could soar, growing this business into its multi-billion-dollar valuation. But I doubt it!

2. Run-ins with regulators

Stock-market history has taught me to avoid companies that get into trouble with regulators, particularly in the financial sector. One such company to fall foul of its overseer is financial-advice firm St James’s Place (LSE: STJ).

Founded in 1991, St James’s Place advises clients on their financial needs, sells them products and manages assets on their behalf. Throughout its history, this wealth manager has faced accusations of levying high, complex and opaque charges on clients.

In 2023-24, the Financial Conduct Authority gave the firm a few ‘taps on the shoulder’, raising red flags over the company’s business model. In July last year, it announced cuts to its fees, sending its shares tumbling.

This stock-market fall was followed by further slumps in October, when the FCA pressured the group to review its fee structure further, and in March, when the firm revealed a one-off provision of £426m for client refunds.

In 2022, SJP made a pre-tax profit of £504m, but the above problems generated a pre-tax loss of £4.5m for 2023. Its shares have crashed 66.2% over one year and 64.1% over five years.

With its stock down over three-quarters from its 2021 high, St James’s Place is a company in crisis. Its valuation has dived to £2.2bn, while its shares languish at lows not seen since late 2012.

Again, I could be wrong — this group might make peace with the FCA and win back the trust of its clients. This could boost revenues and turn this tanker around, but I won’t be betting on this outcome.

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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.

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A cacophony of concerns

Hipgnosis Songs Fund (LSE: SONG) is a FTSE 250 investment trust focused on music royalties. It has a portfolio of some 40,000 songs from a wide range of artists including Blondie, Shakira and Neil Young.

In theory, I like the idea here. Music royalties typically provide a steady stream of income over time. This is generated from various sources, including radio, adverts and streaming services like Spotify.

However, in reality, this fund’s been a major disappointment, so far. The stock’s down 34% since listing in 2018 and there’s been constant uncertainty around the true value of its intellectual property.

To help clear things up, the company hired banking firm Shot Tower Capital last year to conduct due diligence on its assets. It found the fair market value of the fund’s song catalogue to be $1.9bn. That’s 26% less than the fund reported it was worth back in December.

Additionally, Shot Tower’s analysis showed that 67 out of 105 acquisitions made by the fund are worth less than the price paid.

Now going on today’s 68p share price, the latest portfolio valuation suggests the fund is undervalued by around 20%. I’d imagine bidders will eventually emerge for some of its hit songs. So perhaps there is value worth pursuing here.

However, the fund said it won’t be paying dividends “for the foreseeable future” as it focuses on paying down its $674m debt pile (as of September). Ouch!

Basically, the whole thing has become a royal mess and I want no part in it.

Another meme stock

The second stock I wouldn’t touch with a 10-foot bargepole is Trump Media & Technology Group (NASDAQ: DJT).

This company operates Truth Social, an alt-tech social media platform that’s affiliated with former president Donald Trump.

It completed its merger with a special purpose acquisition company (SPAC) and started trading on 26 March. SPAC is an entity listed on the stock market that holds cash and merges with a private company.

Currently, the share price is $46.

One plus point here is that Trump Media now has over $200m in the bank and no debt after this merger. It might be able to use this cash to grow subscribers and revenue.

It’ll need to. The company generated revenue of just under $4.1m last year, while it lost $58.2m. And the latest figures I can find suggest around 5m monthly active users on Truth Social after 26 months of existence. That’s not many for social media.

Then again, perhaps that’s not surprising given that its goal is to provide a “home for cancelled content creators“. That sounds like a somewhat niche market to me.

Anyway, we’ve got a company that generated $4.1m in sales with a marke-cap of $6.3bn.

This means the stock’s trading on a price-to-sales (P/S) ratio of around 1,000. And this places it squarely in speculative meme stock territory. History shows that’s not an attractive place to invest.

Needless to say, I think there are far better stocks for me to buy and hold in April.

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The principle of capital preservation

The Oracle of Omaha is one of the greatest investors in history. And he lays out one basic rule (repeated) for investors to live by:

Rule number 1: Never lose money.

Rule number 2: Never forget rule number 1.

Admittedly, these words sound obvious and overly simplistic. But what Buffett is basically saying here is that investments should be considered as carefully as possible.

The stock market is about getting rich slowly, not quickly.

One share I’d avoid at all costs

For whatever reasons, markets now exhibit far more casino-like behaviour than they did when I was young.

Warren Buffett

At any given time, there will be highly speculative stocks that investors are piling into. The most obvious one I see today is Trump Media & Technology Group (NASDAQ: DJT).

This company, which merged with a special purpose acquisition company (SPAC) and began trading on 26 March, is affiliated with former president Donald Trump. It created the alt-tech social media platform Truth Social.

The share price has rocketed to $48, giving the firm a market cap of $6.6bn.

This seems absurd to me because the company posted a $58.2m net loss on revenue of just $4.1m last year. That puts the stock’s price-to-sales (P/S) multiple above 1,000. For context, a P/S of 10 is considered expensive.

Meanwhile, it’s unclear how many advertisers and daily active users will ever adopt Truth Social. My strong suspicion is — not enough to justify the valuation.

Of course, that’s not to say there couldn’t be more thumbs-up votes for this meme stock in the near term. Momentum can be a powerful force.

But as Buffett is also fond of saying: “In the short run the market acts as a voting machine; in the long run it becomes a weighing machine.”

From $48 today, I think the stock will be weighed very unfavourably over time. I’m staying well away.

One stock I like

In contrast to this, I would invest in JD Sports Fashion (LSE: JD). The share price has risen 10.7% in the past month but remains 24% lower than one year ago.

The problem has been slowing sales due to the tough economic environment. There’s a risk this could worsen, impacting sales and profits. The higher cost of living remains a problem for many consumers.

However, in the 53 weeks to 3 February, JD said it outperformed the wider sportswear market, achieving like-for-like sales growth of 4.2% on a constant currency basis. Organic growth was 8.4%.

Meanwhile, it opened 215 new stores during the year, bringing the group’s total to around 3,500 worldwide. And management expects full-year profits of £915m-£935m.

Looking ahead, we’ve got a summer of sport that includes the Paris Olympics and Euro 2024. This should boost sales.

Plus, JD has a close partnership with Nike, which has just announced a strategic shift to invest more in its wholesale channel. This is also likely to benefit the retailer.

Finally, the stock is cheap at just 11 times this year’s forecast earnings. I’d buy this FTSE 100 stock if I had some spare cash.

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