Simple Concepts Research Group

The Most Overpriced Tech Stocks Right Now (Plus, Cheaper Alternatives)

by | Sep 29, 2021 | Uncategorized

We Discuss the Most Overpriced Tech Stocks Right Now (and Provide Cheaper Alternatives to Each Company)

Spotting overpriced tech stocks can be tricky. As an investor, knowing which companies to avoid is just as important as selecting companies with the greatest profit potential. In this article, we discuss the most overpriced tech stocks to avoid (spoiler alert: several of these companies are popular) and also provide cheaper alternatives in the Tech sector that may be worth an additional look.

All overpriced tech stocks and alternative companies were identified using the Simple Investing Success stock screener, which scans for companies meeting our simple criteria of cheap and good, using simple metrics for discount and valuation.

Overpriced:
Square (SQ)

Square is currently trading at an earnings yield of 0.31%, lower than the yield for the Information Services industry (3.01%) and the S&P 500 (2.87%). The company’s current return on invested capital is 9.54%.

The YTD performance for Square is 18.59%.

Price/Earnings: 228.76
Price/Sales: 13.10
EBITDA: $651.46M
Return on Assets: 5.30%
Price/Free Cash Flow: 176.59
ROIC: 9.54%

Cheaper Alternative:
CISCO Systems (CSCO)

CISCO is a cheaper alternative to Square. The company is trading at an earnings yield of 6.98%. The yield for the Telecom Equipment industry is 6.89%. CISCO has a P/E of 22.49 and a return on invested capital of 20.91%.

The YTD performance for CISCO is 25.63%.

Price/Earnings: 22.49
Price/Sales: 4.78
EBITDA: $15.4B
Return on Assets: 10.70%
Price/Free Cash Flow: 28.59
ROIC: 20.91%


Overpriced:
Zillow (Z)

Zillow is currently trading at an earnings yield of 0.62%, lower than the yield for the Software industry (3.44%) and the S&P 500 (2.87%). The company’s current return on invested capital is 2.24%.

The YTD performance for Zillow is -32.23%.

Price/Earnings: 152.89
Price/Sales: 6.06
EBITDA: $466.31M
Return on Assets: NA
Price/Free Cash Flow: NA
ROIC: 2.24%

Cheaper Alternative:
NetGear (NTGR)

NetGear is a cheaper alternative to Zillow. The company is trading at an earnings yield of 10.55%. The yield for the Telecom Equipment industry is 6.89%. NetGear has a P/E of 10.61 and a return on invested capital of 14.11%.

The YTD performance for NetGear is -19.57%.

Price/Earnings: 10.61
Price/Sales: 0.80
EBITDA: $137.1M
Return on Assets: 8.90%
Price/Free Cash Flow: 11.43
ROIC: 14.11%


Overpriced:
Shopify (SHOP)

Shopify is currently trading at an earnings yield of 0.14%, lower than the yield for the Online Retail industry (2.30%) and the S&P 500 (2.87%). The company’s current return on invested capital is 3.07%.

The YTD performance for Shopify is 20.97%.

Price/Earnings: 74.62
Price/Sales: 60.84
EBITDA: $521.99M
Return on Assets: 25.80%
Price/Free Cash Flow: 337.97
ROIC: 3.07%

Cheaper Alternative:
IBM (IBM)

IBM is a cheaper alternative to Shopify. The company is trading at an earnings yield of 10.22%. The yield for the Computer Services industry is 8.65%. IBM has a P/E of 23.37 and a return on invested capital of 6.83%.

The YTD performance for IBM is 9.21%.

Price/Earnings: 23.37
Price/Sales: 1.68
EBITDA: $14.86B
Return on Assets: 3.50%
Price/Free Cash Flow: 13.04
ROIC: 6.83%


Be sure to add these picks to your Watch List and if you haven’t done so already, check in on the performance of our Current Portfolio. Keep it simple and always do your due diligence.

This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.