Stocks have had a strong year so far, with share prices rising approximately 50% since bottoming in October 2022. This is the best performance since 1957. However, historically, traders are looking for certain stocks to sell during substantial growth.
Typically, stocks experience some pullback, defined as a 10% decline from the recent high. While they do not seem ready to sell yet, there are hints of unease as investors worry about the concentration of gains within a small group of large tech companies.
In fact, returns have disproportionately benefited a select number of mega-cap tech stocks, resulting in divergent performance across the market. Nvidia (NASDAQ:NVDA) exemplifies this trend, briefly becoming the world’s most valuable company. However, it relinquished this title within days, as its share price dropped 13% in one week, which fits the technical definition of a correction.
This raises the question of whether other recent stocks experiencing impressive gains may be worth selling before they tumble. The following three show signs of being overvalued.
GameStop (GME)
The historically volatile GameStop (NYSE:GME) stock is one of the stocks to sell. It gained media attention recently due to an option purchase by a prominent social media investor. GME stock price has fluctuated over 480% in the past couple of months but trades 35% higher year-to-date (YTD). Understandably, its share price movements diverge from traditional investors’ expectations.
Beyond the social reactions, GME has capitalized on heightened interest by issuing additional shares, raising $1.2 billion in its last quarter. While quarterly revenue growth declined 28.70% year-on-year (YOY), the company maintained profitability. Still, at a price-to-earnings (P/E) ratio of 296x, the GME stock appears to be influenced more by fluctuating online sentiment than sustainable profits.
Analyst consensus forecasts a 166.70% growth decline without profit this quarter, which appears to be a recent trend for the full year. Although just one analyst recommends selling GME shares, the average target price of $8.38 signifies a 65% downside. This somewhat aligns with GME’s 52-week low at $9.95 per share.
ZIM Integrated Shipping Services (ZIM)
The Israel-based container shipping company ZIM (NYSE:ZIM) has realized substantial growth in its stock price this year despite issues surrounding the conflict in Gaza. The market is influenced by several factors, including disruptions in the Red Sea, increasing demand from China to Northern Europe and higher fuel costs.
ZIM stock price is up over 106% since the beginning of January, with most gains occurring since late April in line with rising shipping rates. The sudden surge in the company’s share price has surpassed analyst projections and left the stock vulnerable to market fluctuations. Consensus estimates show no profit next quarter, with earnings getting deeper into negative territory.
Earlier this month, the ZIM share price experienced a correction after Citigroup’s downgrade to a sell but has shown signs of recovery. Still, analysts do not believe the price increase can be sustained as their average price targets represent a potential 42% downside. Given the volatility and uncertainties, ZIM may be one of the stocks to sell.
Rocket Companies (RKT)
Rocket Companies (NYSE:RKT) is the final pick in this list of stocks to sell. The fintech company focused on real estate financial services and mortgages has not performed well this year due to the depressed state of the U.S. housing industry. As the market waits for the Federal Reserve to lower interest rates, RKT stock may still remain under pressure.
While the company may grow when interest rates decrease, applications for new mortgages have been declining in the high-interest rate environment. Despite barely managing to remain profitable in the last quarter, operating cash flow registered -$1.57 billion.
Analysts do not appear convinced of Rocket’s current prospects. None recommend buying RKT stock, and they have an average price target of $11.69 per share, representing a potential downside of 18%. Given the lack of analyst support and a forward P/E of 58.82x over half its current ratio of 117.50x, RKT stock may correct to deeper levels.
On the date of publication, Stavros Tousios 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.