There are three tech stocks to sell for February. These companies are in the process of a slow decline via slowing fundamentals and weak business models that are not conducive to the long-term gains that investors hope for.
Given the rising S&P 500 and Nasdaq indices, which generally signal robust market conditions, investors might expect all tech stocks to follow suit. This may be true to an extent for the three discussed in this article. However, I feel they also have distinct challenges that may hinder their ability to capitalize on these broader market trends.
Their issues, ranging from slowing revenue growth to profitability concerns, suggest that their struggles are not just temporary setbacks but indicative of deeper operational and strategic misalignments. Investors would be better off holding a broad-based ETF instead of these names, especially since I predict the AI boom will be here for some time to come.
So here are three tech stocks to sell for this month in February.
Veritone (VERI)
As Investorplace has covered before, Veritone (NASDAQ:VERI) offers an AI platform optimizing business data for decision-making and is heavily reliant on a major client for its hiring solutions, namely Amazon (NASDAQ:AMZN).
Tyrik Torres noted that this poses “tremendous amounts of customer risk,” and I agree wholeheartedly. A business thriving or dying based on the success of a single client is absurdly risky, even if it has a pipeline full of potential clients.
My take is that the market is correct about its assessment of VERI’s suitability as an investment. Its short interest to float percentage is 15.87% at the time of writing, so option writers and buyers are anticipating a big downward move.
This, combined with zero accounting profits, an expensive forward P/E of 44 times earnings, and an ignored price-to-sales ratio of 0.5 times sales, makes it seem the market has made up its mind and its pricing in its downfall. This then clearly makes it one of those tech stocks to sell.
Zoom (ZM)
Zoom (NASDAQ:ZM), the video conferencing giant, is more of a slow burner in regards to my sell thesis. VERI looks like it will go out with a bang, but ZM stock’s seeming lack of progress or attractiveness is what I think will bleed investors dry.
For FY 2024, Zoom projected total revenues to be in the range of $4.495 billion, with operating earnings expected to reach $1.743 billion. Despite the challenge of shifting from a pandemic-fueled growth spurt, Zoom’s guidance suggests an effort to stabilize and grow its financials.
However, I feel this stabilization is a little too slow, with its top line expected to increase by 5.78% this year when it has just $4.65 billion in revenue.
The remote working peak may have come and gone, as the “new normal” didn’t stay new or normal for very long. ZM may be remembered as one of the biggest casualties of the covid boom in tech stocks, as its main catalyst turned out to be just a short-term necessity instead of a permanent or sustainable shift in work culture. This makes it one of those tech stocks to sell.
Peloton (PTON)
Another casualty of covid era, Peloton (NASDAQ:PTON) has faced challenges with demand fluctuations post-pandemic.
For Q4 FY2024, Peloton reported revenue of $743.6 million, slightly beating analyst estimates but still marking a year-on-year decline. The company’s EPS was a miss at -$0.54 against expectations of -$0.52. The company also has revised its full-year revenue guidance downward from $2.75 billion to $2.71 billion, indicating a cautious outlook.
These problems go a long way back. Despite a historic annualized revenue growth rate of 34.3% over the last five years, recent trends have shown annualized declines.
The market is also pricing in further downside for PTON, which, I believe, can be trusted more than analyst estimates in general. Falling more than 64% over the past 52-weeks, its short percentage of float is 15.36%, so its being priced in as a falling knife.
I think PTON’s peak was with the pandemic, and there’s a slim, untakeable chance that it will turn itself around.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.