Successful investing calls for the appropriate identification of overpriced stocks and correctly priced stocks. However, in practice, overhyped stocks and fairly priced stocks are intermixed in the marketplace in such a way that it becomes difficult to distinguish between them. Investors who can correctly spot overpriced stocks and shun them at the right time are the ones likely to make a profit.
The unjustifiably high price of these stocks is short-lived as their intrinsic value is less than their current price. The higher price of the stocks can be attributed to either an irrational exuberance associated with them or some serious fundamental lacuna associated with them. Quite naturally, if you own such stocks for a long period of time, you are sure to incur a huge loss of wealth. Overvalued stocks can be identified by meticulously studying the financial statement of underlying company. There are different ratios and multiples based on which one can differentiate overvalued stock from fairly-valued ones. One should also avoid stocks that are fraught with huge debt loads and susceptible to external shocks. The Howard Hughes Corporation , Impinj Inc ( PI Quick Quote PI - Free Report) , TechTarget ( TTGT Quick Quote TTGT - Free Report) & Semtech Corporation ( SMTC Quick Quote SMTC - Free Report) are a few stocks that fall in the category of overvalued stocks. If you can accurately pinpoint overvalued stocks, you are likely to gain by resorting to an investing strategy called short selling. This strategy allows you to sell a stock first and then buy it when the price falls. While short selling excels in bear markets, it typically loses money in bull markets. So, just like picking up stocks with strong growth potential, pinpointing overvalued stocks and abandoning them at the right time is the key to protecting your portfolio from big losses or making profits by short selling them. Screening Criteria
Here is a winning strategy that will help you to identify overpriced stocks:
Most recent Debt/Equity Ratio greater than the median industry average: High debt/equity ratio implies high leverage. High leverage indicates a huge level of repayment that the company has to make in connection with the debt amount. P/E using 12-month forward EPS estimate greater than 50: A very high forward P/E implies that a stock is highly overvalued. % Change in F (1) and F (2) Estimate (12 Weeks) less than -5: Negative EPS estimate revision for this fiscal year and the next during the past 12 weeks points to analysts’ pessimism. Zacks Rank more than #3 (Hold): We have not considered Buy/Hold-rated stocks that generally outperform or are in line with the market. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Stocks to Discard
Here are four of the 25 overpriced stocks that showed up on the screen:
Howard Hughes operates as a real estate company engaged in the development of master-planned communities and other strategic real estate development opportunities across the United States. The Zacks Consensus Estimate for HHC’s 2023 bottom line is pegged at a loss of $1.01 per share, implying a year-over-year deterioration of 127.67%. The consensus mark has moved south from earnings of 6 cents per share over the past 30 days. Howard Huges beat earnings estimates in three out of the last four quarters and missed once, with the average surprise being 53.14%. The company carries a Zacks Rank #4 (Sell) and has a VGM Score of F. Impinj is a provider of referral and information network radio frequency identification solutions to the retail, pharmaceutical, healthcare, food and beverage and other industries. The Zacks Consensus Estimate for PI’s 2023 bottom line is pegged at a profit of $1.49 per share, down from $1.59 per share 60 days ago. Impinj beat earnings estimates in two out of four trailing quarters and missed twice, with the average surprise being 181.86%. The company carries a Zacks Rank #4 and has a VGM Score of F. TechTarget is a leading online Information Technology media company, providing IT companies with ROI-focused marketing programs to generate leads, shorten sales cycles, and grow revenues. The Zacks Consensus Estimate for TTGT’s 2023 bottom line is pegged at a profit of $1.52 per share, implying a year-over-year deterioration of 40.63%. The Zacks Consensus Estimate for the firm’s 2023 earnings has moved south from $1.93 per share over the past 30 days. TECHTARGET beat earnings estimates in all four trailing quarters, with the average surprise being 11.17%. The company carries a Zacks Rank #4 and has a VGM Score of C. Semtech designs, manufactures and markets a wide range of analog and mixed-signal semiconductors for commercial applications. The Zacks Consensus Estimate for SMTC’s 2023 bottom line is pegged at a profit of 48 cents per share, implying a year-over-year deterioration of 82.86%. The consensus estimate has moved south from earnings of 78 cents per share over the past 60 days. Semtech beat earnings estimates in three out of the four trailing quarters and missed once, with the average surprise being 2.18%. The company carries a Zacks Rank #4 and has a VGM Score of F. Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting software. The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out. . Click here to sign up for a free trial to the Research Wizard today Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance. (We are reissuing this article to correct a mistake. The original article, issued on June 1, 2023, should no longer be relied upon.)