While nothing moves the world quite like digital innovation, at a certain point, even the most bulletproof enterprises require a cooling-off period, thus segueing to the topic of overvalued tech stocks to sell. To be 100% clear, this narrative does not center on shorting these market ideas. Rather, it’s about considering taking some profits off the table heading into a contentious month of June.
So, what’s special about the sixth month of the year? Fundamentally, all eyes are focused on the debt ceiling crisis. According to the latest Reuters report, both the White House and Republicans see progress in this critical matter. However, as of this writing, policymakers have yet to close a deal to help avoid a potentially catastrophic default. Therefore, holding onto top overvalued tech stocks to avoid might not be prudent.
Even if an agreement is reached, lingering questions about fiscal responsibility will remain. In addition, the market already struggles with stubbornly high inflation and rising borrowing costs. Just as a practical course of action, selling overvalued tech stocks might not be a bad idea.
Red Violet (RDVT)
Based in Boca Raton, Florida, Red Violet (NASDAQ:RDVT) builds proprietary technologies and applies analytical capabilities to deliver identity intelligence, according to its website. Financially, there are plenty of things to like about Red Violet. Most notably, it features a rock-solid balance sheet, with a cash-to-debt ratio of 27.42. In contrast, the median metric for the software industry sits at 2.8 times.
However, one issue that makes RDVT one of the overvalued tech stocks to sell centers on its volatility. In the trailing month, RDVT managed to pop higher to the tune of 24%. However, since the beginning of the year, shares stumbled more than 12%. In the past 365 days, RDVT slipped 18%.
Objectively, it’s also overvalued. Currently, the market prices RDVT at a trailing multiple of 249.5 times. In contrast, the sector median price-earnings (PE) ratio is less than 27 times. Also, its trades at 123.97 times free cash flow. Here, the median stat comes out to 23.84 times. Therefore, RDVT may be one of the overvalued tech stocks to sell.
Up until recently, Docebo (NASDAQ:DCBO) – which leverages artificial intelligence to help facilitate content creation and management – printed a positive performance in the price charts. Unfortunately, investors took a dim view of the enterprise when it released its first quarter of 2023 earnings results. Although the company beat both profitability and revenue targets, the market might not have much confidence regarding forward-looking macroeconomic challenges.
Now, whatever caused the volatility, Docebo on paper represents an overvalued business. Primarily, the market prices DCBO at a trailing multiple of 71.47. In addition, it trades at a forward multiple of 143.8. As a “discount” to projected earnings, Docebo ranks worse than 93.7% of companies listed in the software industry.
What’s more, DCBO’s price-sales ratio stands at 7.29 times. In contrast, the underlying software industry features a trailing sales multiple of only 2.34. And it also trades at a whopping 989.41 times FCF. With price action pensive since taking a sharp blow following the Q1 results, investors may want to consider DCBO as one of the overvalued tech stocks to sell.
A developer and marketer of proprietary enterprise software and other products for the hospitality industry, Agilysys (NASDAQ:AGYS) enjoyed a significant rebound since the lull associated with the Covid-19 pandemic. Once global jurisdictions began relaxing their mitigation protocols, business in the hospitality sector boomed. Not surprisingly, AGYS blossomed with the industry. Unfortunately, the stratospheric ride might be coming to an end.
Yes, AGYS almost doubled in value in the trailing one-year period, let’s acknowledge that. However, since the January opener, AGYS slipped more than 10%. The change in trajectory may be an early warning signal that it’s one of the top overvalued tech stocks to avoid.
Presently, the market prices Agilysys shares at a trailing multiple of 142.14. Conspicuously, though, the underlying software industry trades at a median multiple of only 26.98. In addition, the market prices AGYS at a trailing-year sales multiple of 9.1. As a “discount” to revenue, Agilysys ranks worse than 85.26% of the competition. With the consumer economy facing broader headwinds, it may be a safer bet to consider AGYS as one of the overvalued tech stocks to sell.
Headquartered in Milton, New York, Sono-Tek (NASDAQ:SOTK) is a world leader in ultrasonic coating solutions since 1975, per its website. Its innovative, patented coating systems provide full solutions to complex and diverse coating challenges in myriad global industries. Unfortunately, SOTK just isn’t getting it done in the charts. Since the beginning of this year, SOTK slipped almost 12%.
Plus, in the past 365 days, SOTK gave up more than 15% of its equity value. Eyeballing the price action, it appears to struggle for upside catalysts. Objectively, that might be because it ranks as one of the overvalued tech stocks to sell. At the moment, the market prices SOTK at a trailing multiple of 80. As a valuation prospect, Sono-Tek ranks worse than 88.79% of its peers.
In addition, SOTK trades at 5.38 times trailing sales. As well, the market prices shares at 6.09-times tangible book value. Both stats rank worse than at least 86% of sector rivals. To be clear, Sono-Tek features a zero-debt balance sheet, along with strong revenue growth. It’s just that SOTK has probably baked in these attributes. Thus, it’s a candidate for those selling overvalued tech stocks.
Aehr Test Systems (AEHR)
At first glance, Aehr Test Systems (NASDAQ:AEHR) might not seem an ideal candidate for tech stocks to avoid. Specializing in silicon carbide wafer level burn-in and test screening, Aehr carries implications for the automotive industry, particularly electric vehicles. Sure enough, the market has so far responded positively to AEHR. Since the January opener, shares gained nearly 65% of equity value.
However, that blistering performance decelerated recently. In the past five sessions, AEHR gained only half a percent. An early warning sign that this is one of the overvalued tech stocks to sell? It’s possible. Notably, investment resource Gurufocus labels Aehr Test Systems significantly overvalued.
Objectively, we can look at AEHR’s PE ratio of 61.8, which ranks worse than 81% of its peers. Also, the market prices shares at 13.91 times trailing sales. In contrast, the underlying semiconductor industry features a median stat of only 2.65 times. Just for good measure, AEHR trades at 12.51-times tangible book value, worse than nearly 94% of sector players. Certainly, it’s not a bad investment because of Aehr’s strong balance sheet. However, it might need a temporary time-out.
PDF Solutions (PDFS)
Based in San Jose, California, PDF Solutions (NASDAQ:PDFS) turns semiconductor manufacturing and test data into actional foresight, according to its website. A relevant enterprise, the market has responded very positively to PDFS. Since the Jan. opener, it popped up nearly 38%. To contextualize, the Nasdaq Composite index gained just over 20% during the same period.
In addition, PDFS skyrocketed to the tune of over 69% in the past 365 days. While it’s rocking and rolling, that fact alone draws attention regarding overvalued tech stocks to sell. Gurufocus pegs PDF Solutions as modestly overvalued. Objectively, though, it appears significantly so.
For instance, PDFS’ stratospheric four-digit PE ratio ranks worse than over 99% of its peers. Further, the market prices shares at 9.31 times trailing sales. In contrast, the software industry features a median stat of only 2.34 times. Translated against the competition, PDF Solutions ranks worse than 86.27%. To be sure, the company enjoys a stable balance sheet and robust long-term revenue growth. However, it just needs a cool-off period. Therefore, PDFS ranks among the top overvalued tech stocks to avoid.
A global payments technology firm, Nuvei (NASDAQ:NVEI) provides businesses with pay-in and payout options. These include card issuing, banking, risk, and fraud management services. Though relevant to the broader digitalization framework, NVEI presents a case for overvalued tech stocks to sell. Yes, shares gained over 23% of equity value since the Jan. opener. At the same time, in the past one-year period, it lost almost 33%.
Now, the financial picture is a tricky one as far as the topic of top overvalued tech stocks is concerned. On paper, NVEI trades at a trailing multiple of 104.9. This stat ranks worse than nearly 89% of the software competition. Still, against its forward multiple, NVEI trades a very respectable 20.3 times. Adding to the ambiguity, though, Gurufocus labels Nuvei as a possible value trap.
So, what gives? Ultimately, prospective investors may want to consider the recent deterioration of sentiment. In the trailing month, NVEI gave up more than 21% of its market value. Fundamentally, a payments technology company might not be so appealing given the obvious challenges to the consumer economy. Therefore, NVEI is one to flag for those selling overvalued tech stocks.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.