Analyst ratings are a key factor that can influence an investor’s decision to take a position in a stock. Analysts work for financial firms or investment banks. They analyze companies and offer a rating that helps investors differentiate between stocks that are likely to outperform and overhyped stocks.
Because of their relationships with company insiders, analysts’ opinions carry significant weight with investors. The typical ratings that analysts use are buy, hold, and sell. Other ratings that could mean buy are terms such as outperform or overweight.
But sometimes analysts get it wrong. This can be particularly true when the market is showing signs of topping and stocks are being propped up by as much hype as hope. In times like these, it’s important for investors to trust their gut and, when necessary, sell the news.
That looks like sound advice for the following seven overhyped stocks. These stocks have generally positive sentiment from analysts, but are not likely to live up to bullish expectations.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) has been one of the best-performing stocks of 2023. The stock is up 65% in the last 12 months. And it’s up even more if you bought the stock at its trough in December 2022.
Like many of its tech brethren, Meta executed a series of layoffs in an effort to wring out excesses in spending. Then in July, the company launched its new social network, Threads, which is a close facsimile of Twitter. Not surprisingly, META stock is up 9% over the last month.
However, only a couple of weeks after the launch, data shows a decline in active users and engagement for Threads. Additionally, it will be too early for the company to have significant data by the time Meta reports earnings on July 27. With the tech sector starting to look frothy, now would be a good time to take some profits if you have a position. And if you don’t have a position, you may want to wait to see where META stock settles.
Best Buy (BBY)
Best Buy (NYSE:BBY) is up approximately 5% over the last month. That accounts for almost the entire 12-month gain of 7% for this stock. This suggests that investors are buying into this market rally, and that investors may also be attracted to the company’s forward price-earnings ratio of just 14-times.
But retail sales are softening. That was clear in the company’s first quarter earnings report. Revenue was down 11% year-over-year earnings were down a whopping 25% over the same time frame. With much of the stimulus money wrung out of the economy, it’s fair to wonder how much discretionary spending power will be left for the goods Best Buy offers.
The consensus opinion on BBY stock is a hold. And since the company’s last earnings report, there haven’t been any noticeable downgrades.
However, several analysts are lowering their price targets for BBY stock. More tellingly, I’m not seeing any analysts raising their targets. The company reports again in August, and if revenue and earnings continue their downward trend, analyst sentiment is likely to turn negative.
Peloton (PTON)
Peloton (NASDAQ:PTON) remains a stock prone to wild swings. For example, the stock is down 15% over the last 12 months, but during that time, PTON stock has surged as much as 53%.
But this article is about overhyped stocks. And even though the stock is far below that $16.98 closing price, it’s still up 11.5% higher over the last month.
This move seems to be more about hype. Peloton is leaning into becoming a connected fitness company, with a new tiered subscription model that will allow Peloton to be relevant “for anyone, anywhere.” The app will allow Peloton to capture a broader set of customers, even those who don’t currently own a Peloton product.
Analysts are generally neutral on the stock. Still, 10 out of 26 analysts give PTON stock either a buy or strong buy rating. That seems excessive.
While this strategic shift may result in a higher-margin business, it invites the question of how much of the company’s addressable market it can capture. And if it does, will Peloton be able to continue to deliver the fresh content that will be needed to prevent user churn?
Time will tell. In the meantime, you can wait on PTON stock.
Lucid Group (LCID)
Lucid Motors (NASDAQ:LCID) is one of the many electric vehicle (EV) startups to go public in the last three years. But after getting off to a meteoric start, investors are coming to grips with the reality that these are capital-intensive businesses. And many of these companies are burning tremendous amounts of cash in an effort to ramp up production.
Notably, LCID stock is up more than 8% in the last month on two separate announcements. The company could see capital infusions of about $3 billion, as Lucid ramps up production. These announcements were particularly timely because, in its most recent earnings report, Lucid reported having only $4 billion in total liquidity. At that time, the company said it had enough cash to get through 2024. But this doesn’t change the fact that part of this cash infusion will result in further share dilution at a time when Lucid Group’s stock is barely above penny stock level.
That being said, 5 out of 13 analysts give Lucid a buy rating and its consensus price target suggests a 34% upside for the stock. I’m not buying it.
Carnival Corp. (CCL)
Carnival Corp. (NYSE:CCL) is another stock being fueled by a significant dose of hope. CCL stock is up 59% over the last 12 months and more than 12% in the last month.
On the one hand, it makes sense that Carnival would be outperforming the market. Cruise line stocks were beaten down as ships were under “no sail” orders during the pandemic. Disciplined, patient investors had reason to believe that it was only a matter of time before cruise stocks such as Carnival would bounce back.
But the other side to this story is that the run-up in CCL stock looks overdone. Don’t tell that to analysts – 20 out of 26 analysts have either a buy or hold rating on the stock. These ratings may be anchored on the belief that the cruise line will return to profitability in 2024.
They may. But even if the sector sees a profitability surge, aggregate profits are likely to remain well below pre-pandemic levels. Add to that concerns about the economy dipping into a recession, and it’s easy to see why Carnival makes this list of overhyped stocks.
Datadog (DDOG)
Datadog (NASDAQ:DDOG) is one of the darlings of the tech sector in 2023. Investors that bought DDOG stock five years ago have been rewarded with a gain of more than 200%. And that growth includes a 43% drop since the stock topped in late-2021.
In the last month, interest in the cloud monitoring and security company has increased, as the stock has surged roughly 15%. That said, DDOG stock still presents a bearish outlook for investors. Revenue growth is slowing, and the company’s revenue growth of around 29% is lower than its three-year average of more than 60%.
Currently, 26 out of 36 analysts give DDOG stock a buy rating. However, if the air continues to come out of the tech sector, analysts are likely to sharpen their pencils on DDOG stock. When they do, their price targets are likely to reflect a price for one of the overhyped stocks that is closer to its fair value.
WeWork (WE)
A stock that’s trading near its 52-week low may seem like an odd candidate to put on a list of overhyped stocks. But that’s the case with WeWork (NYSE:WE). For the unfamiliar, the company provides “flexible workplace solutions to individuals and organizations worldwide.” These solutions could include workstations, private offices, high-speed business printers and more.
WeWork went public in late-2020. Then and now, the bullish thesis rests on a robust return to the office by workers. That hasn’t materialized, and it doesn’t appear that it will happen in a meaningful way anytime soon.
The company has grown revenue, but that growth has slowed to a trickle. And the company is not yet profitable. Any recent excitement seems to be coming from a debt restructuring plan. But playing defense only takes a company so far.
It’s a fool’s gambit to say “this time is different.” There is likely to be a hybrid solution that could be bullish for WeWork. But that doesn’t mean you need to buy WE stock today.
On the date of publication, Chris Markoch 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.