雅虎香港財經 3 Overvalued Growth Stocks to Sell Before They Correct
It’s almost impossible to time the markets, but history tends to rhyme. The best strategy is to sell in times of euphoria and buy when fear is the dominant sentiment. The market correction in 2022 translated into a big correction for growth stocks. The tables have turned in 2023 with several growth stocks skyrocketing.
I remain positive on the overall markets and I believe that the S&P 500 index is likely to remain in an uptrend in 2024. However, it makes sense to book profits in overbought growth stocks. My focus in this column is on growth stocks to sell now and buy later. In other words, these are fundamentally strong companies with stretched stock valuations.
A correction would therefore be a good opportunity to consider fresh exposure to these growth stocks. I would ideally look at a 15% to 20% correction before considering these overvalued growth stocks.
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Miniso Group (MNSO)
Source: shutterstock.com/Hendrick Wu
Miniso Group (NYSE:MNSO) stock has skyrocketed by 383% in the last 12 months. The rally has been backed by strong fundamental developments. However, I believe that MNSO stock is in the overbought zone. I would expect a 20% correction in the next few months from current levels of $28.30.
For Q4 2023, Miniso reported robust revenue growth of 40.3% on a year-on-year basis to $448.5 million. Further, adjusted EBITDA increased by 103.8% on a year-on-year basis to $118 million. Given the strong growth momentum and margin expansion, MNSO stock was expected to surge higher.
It’s also worth noting that Miniso opened 592 new stores for fiscal year 2023. With an increasing overseas presence, the company’s growth outlook remains robust. Another positive to note is that Miniso announced an annual dividend of 41 cents. This has translated into an attractive dividend yield of 1.50%. The reasonable yield is another factor driving the stock higher.
Overall, Miniso is positioned for growth and value creation. However, I would wait for a correction before considering fresh long-term exposure.
Nvidia (NVDA)
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Nvidia (NASDAQ:NVDA) stock has surged by 215% for year-to-date. While the stock has corrected from highs, I believe that another 10% to 15% downside might be on the cards. NVDA stock trades at a forward price-earnings ratio of 42 with the S&P 500 P/E ratio at 25.6. Valuations look stretched even after considering healthy AI-driven growth tailwinds.
For Q2 2024, Nvidia reported revenue growth of 101% on a year-on-year basis to $13.5 billion. Further, the company’s operating cash flow was robust at $6.3 billion. This implies an annual OCF of $25 billion and provides Nvidia headroom to aggressively invest in R&D.
An important point to note is that Nvidia recently announced a partnership with blue-chip companies in India to develop AI infrastructure. The Companies include Reliance Industries (NSE:RELIANCE) and Tata Group. Entry into new markets provides robust long-term growth visibility. Nvidia has additional revenue growth drivers, including data centers, gaming, and opportunities in the automotive sector.
Li Auto (LI)
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Without a doubt, Li Auto (NASDAQ:LI) is the best name among emerging EV stocks from China. I would bet on multibagger returns from LI stock over a five-year time horizon. However, after a rally of over 90% year-to-date, the stock is likely to take a breather. I would look at accumulating LI stock in the range of $33 to $35.
Among the positives, Li Auto continues to report robust delivery growth. This is backed by the launch of new models and aggressive retail expansion within China. I expect delivery growth to be sustain and further improvements in EBITDA margin. It’s worth noting that for the last quarter, Li reported an impressive vehicle margin of 21%.
Another positive to note is that Li Auto has been reporting positive free cash flows on a sustained basis. As of Q2 2023, the company had $10.17 billion in cash and equivalents. This provides high flexibility for investment in innovation-driven growth.
On the date of publication, Faisal Humayun 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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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