There’s a chance that every stock currently on the market trades overhyped and overvalued. Each week, and ultimately each month, indexes like the S&P 500 and Dow Jones Industrial Average break new records, defying expectations and keeping stock prices engorged. Of course, some stocks are not a part of these rallies, as they dip in value due to abysmal earnings reports or reputational hits.
However, some stocks reach the next level of hype that artificially inflates their stock price and generates a position worth selling. For investors who build their portfolios by picking individual stocks, knowing which overhyped stocks to sell is critical. That’s because it allows for hedging against potential price crashes and keeps your money efficient at making more money.
To determine which stocks are overhyped, investors should keep an eye on the attention those stocks get in comparison to their actual financial metrics. Ratios such as price-to-earnings and price-to-book can also be good for determining if a company’s shares are fairly valued.
Nio (NIO)
As a new electric vehicle maker, there’s been a disproportionate amount of buzz surrounding Nio (NYSE:NIO) over the last few years. Yet, frankly, a lot of it has been a result of hype. Starting with the obvious, the company is available to U.S. investors as an American depository receipt (ADR). That means you’re buying a share simply with the hopes of it going up in value to cash out at a later date. There is no potential for a dividend and no shareholder perks.
Second, the company’s operations are centered in and focused on the Chinese market, so American investors have little exposure to the products the company produces. That makes it very difficult to accurately gauge the performance of its products in a free market system rather than the controlled structure of China’s economy.
Beyond these concerns, the company has still not turned a profit, meaning it has no price-to-earnings ratio for which to determine its value. It’s entirely speculative for now, and its cars may never reach the level of adoption needed to be profitable.
Rivian Automotive (RIVN)
Another overhyped EV manufacturer, Rivian Automotive (NASDAQ:RIVN) is somewhat better than Nio, but not by much. The company’s models focus on an interesting vehicle niche, SUVs and pickup trucks. That is where the first inherent issue with the company’s business model lies. While SUVs are roomier than sedans, they also offer greater ride height for better offroad performance and tougher terrains.
However, going offroading with an EV is a counterintuitive prospect. Furthermore, its pickup truck model, the R1T misses the mark on the ruggedness and practicality that attracts someone to buy a pickup truck. Now pair these design drawbacks with declining demand for EVs, and it’s unlikely that Rivian will reach its goal of profitability by Q4 2024.
As such, RIVN stock is one of the most overhyped stocks to sell right now, as it faces many of the same issues as the broader EV industry, with even more business model-specific hurdles standing in its way.
Palantir Technologies (PLTR)
Depending on who you ask, Palantir Technologies (NYSE:PLTR) stands either undervalued or overvalued for what the company offers. The bigger issue, however, with the hype around Palantir is that many retail investors do not understand what it does. Usually, the description given has something to do with software and data analysis.
However, Palantir is in the business of making government intelligence agencies more efficient. It’s in this marriage between big data and big government that Palantir has shined, and for now, it’s doing well. After all, government spending on defense is booming as Congress funds two modern wars, one in Ukraine and one in the Middle East. This is churning an ocean of data for Palantir to work with and interpret for its customers in the U.S. government.
However, should the U.S. change its stance on these wars through a change in administration this November, the hype around Palantir could die down, unveiling a more realistic price trajectory from the one most analysts expect today.
On the date of publication, Viktor Zarev did not hold (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.