It’s been a great year for growth stocks in general and more speculative companies in particular. The return of Keith Gill, the trader more commonly known as Roaring Kitty, inspired particular enthusiasm in meme and short-squeeze stocks.
This has traders understandably excited and looking for the next big thing that can blast off. But not all of these promising meme or speculative stocks are worthy of investors’ time and capital.
In fact, for these three overvalued stocks in particular, the underlying fundamental situations are worrisome. Traders should dump these overvalued stocks before the broader market takes note of these companies’ fatal flaws.
Joby Aviation (JOBY)
Joby Aviation (NYSE:JOBY) is a venture stage company attempting to commercialize electric vehicles for short-range flights. The idea is that passengers can use Joby vehicles to get from an airport to a destination close to their house or office, for example.
In theory, this sort of electric vehicle could transform the urban taxi market. Perhaps EVs would be a real improvement over traditional helicopters. But that is far from certain.
As a reminder, private helicopter services have existed for decades and remain a niche. While certain well-heeled customers are willing to pay up for private air services, it’s unclear that the economics will ever pencil out as a mass market operation.
Joby and the other eVTOL upstarts are betting that electrification is the key that unlocks this market. It could help with environmental concerns, to be certain. However, unless operating costs drop dramatically compared to traditional helicopters, it’s far from assured that this will be a profitable venture. Additionally, short sellers have taken Joby to task citing concerns both on the cost of the vehicles and with eventual passenger demand.
If Joby had a small valuation, this sort of speculative gamble could be justified. But Joby is selling at an exorbitant level; the firm’s market capitalization sits around $3.5 billion. That’s a massive price tag for a company with virtually no revenues and which is years away from demonstrating whether or not its business model is viable.
Carvana (CVNA)
The rise, fall and renewed rise of Carvana (NYSE:CVNA) has been one of the market’s more fascinating stories of the past few years.
CVNA skyrocketed from a low of $30 during the pandemic to a peak of more than $300, making for a 10-bagger. Shares then fell more than 98% in the ensuing decline, with the stock bottoming out below the $5 mark. Since then, Carvana shares have jumped twenty-fold to more than $100 each today.
Is the rally warranted? On the one hand, Carvana appeared to be on the verge of bankruptcy not long ago, so merely avoiding that was cause for celebration.
However, the company still has a massive debt load and remains unprofitable. It’s particularly concerning that Carvana has been unable to ever consistently generate profits during an historic economic boom with unrivaled consumer spending. If Carvana couldn’t make money selling cars over the past few years, when exactly is the business model going to work?
Carvana’s management team deserves credit for steering away from what appeared to be an imminent restructuring situation a few years ago. But with analysts projecting the company to remain unprofitable through at least 2025, the firm’s $22 billion market capitalization is hard to fathom. Meanwhile, any recession or downturn in the automotive market could cause Carvana’s ugly debt load to spiral back into an existential crisis.
Enovix (ENVX)
Enovix (NASDAQ:ENVX) is one of the most controversial stocks on social media platform X, which was formerly known as Twitter. There, a variety of personalities have taken to talking up the prospects of Enovix, a small company seeking to commercialize a new silicon anode battery model.
The bulls sell a story of Enovix having a transformational battery that will revolutionize consumer electronics and electric vehicles. The bears say the story is total hot air and that Enovix shares are utterly worthless.
Who is right? Only time will tell. That said, the bulls are making fantastic claims and they need to provide much more evidence to back up their story.
Meanwhile the facts on the ground are alarming. Enovix has been hit by production delays. It recently fired a third of its staff. And the company generated just $5 million of revenues last quarter, with analysts expecting a decline from that already low level going forward. All this is awfully alarming for a company whose current market capitalization is above $2 billion.
On the date of publication, Ian Bezek 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.