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Beware! 3 Tech Stocks Waving Massive Red Flags Right Now.

In today’s dynamic investment landscape, while many innovators have stolen the limelight with impressive yields, it’s equally crucial to have a keen eye on tech stocks to avoid. Recognizing potential pitfalls isn’t the most pleasant task, but it’s indispensable for a disciplined and holistic market strategy.

A cardinal rule in investing underscores the velocity of transactional dynamics. Typically, companies invest time and resources to craft their value, even in volatile phases. Yet, in moments of market panic, their descent can be swift and brutal. Hence, a preemptive move away from potential tech stocks to sell is often the wisest course.

Furthermore, the tech sector predominantly leans towards growth. This is all well and good in a bullish environment. But as the market ebbs and flows, and with a growing trend of investors leaning towards risk-averse assets, clinging to growth-focused ventures might spell trouble. So, as we navigate these waters, let’s delve into the tech stocks to avoid and ensure our portfolios are well-balanced and resilient.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

Tech Stocks to Avoid: DLocal (DLO)

Mobile phone with webpage of Uruguayan payment company dLocal Limited (DLO) on screen in front of logo Focus on top-left of phone display
Mobile phone with webpage of Uruguayan payment company dLocal Limited (DLO) on screen in front of logo Focus on top-left of phone display

Source: Wirestock Creators / Shutterstock.com

In the bustling fintech sector, DLocal (NASDAQ:DLO), a Uruguayan firm facilitating cross-border payments, has been drawing attention. Indeed, with an equity gain of over 28% since the start of the year, its relevance is clear and its financial trajectory appears promising, especially post-August 11.

However, this trajectory is prompting some caution, suggesting DLO may be one of those tech stocks to avoid in the short term. Delving into Fintel’s options flow screener, which zeroes in on significant institutional trades, we observe an uptick in bearish activity around options that expire in early 2024. This sentiment isn’t isolated, as DLO’s stock has retreated by over 8% in the last five trading sessions.

From a fiscal standpoint, DLocal doesn’t seem to be on the brink. The company boasts a robust balance sheet, underscored by an enviable cash-to-debt ratio of over 151x. Despite this, the prevailing market sentiment hints that it might be one of the tech stocks to sell, at least in the short term.

Analysts, playing it safe, have labeled DLO as a hold, with a projected upside of around 6% at a price target of $20.92. Given the associated risks, potential investors may wish to tread carefully.

Yelp (YELP)

Source: BigTunaOnline / Shutterstock.com

Yelp (NYSE:YELP) stands as a paradox in the tech space. Renowned for its crowd-sourced reviews, it has undeniably cemented itself as a crucial decision-making tool for consumers. Its grassroots approach gives power to the voice of the average spender, deciding who deserves their hard-earned cash.

Yet from an investment perspective, its narrative is tinged with caution. The year started with a bang for YELP, clocking in a 55% rise in equity value. However, this gusto seems to be waning, with a mere 6% gain in the past month.

This dwindling momentum combined with its concerning valuation – a whopping 71.63x trailing earnings multiple, outpacing 86.67% of its industry counterparts – raises eyebrows. To add to the skepticism, institutional traders are heavily betting against it. Analysts aren’t too optimistic either; their average price target of $41.83 suggests a looming 3% dip. In this landscape, YELP emerges as one of the tech stocks to avoid.

C3.ai (AI)

C3.ai (AI) logo on a smartphone with computer screen showing graph in background, symbolizing AI stock
C3.ai (AI) logo on a smartphone with computer screen showing graph in background, symbolizing AI stock

Source: shutterstock.com/Below the Sky

In the tech realm, few sectors dazzle like artificial intelligence. Enter C3.ai (NYSE:AI), a heavyweight specializing in enterprise-level AI services. As industries race to embed AI and machine learning into their DNA, companies like C3.ai stand out as pioneers.

The market sentiment echoes this enthusiasm, rewarding AI stock with a staggering 146% surge since the start of the year. But it hasn’t all been smooth sailing. Despite its recent successes, AI has seen a drastic 77% plummet since its market debut.

This volatility, combined with noteworthy skepticism, casts it as one of the tech stocks to avoid for the cautious investor. Data-driven insights further this cautionary tale. Fintel’s options flow screener reveals a significant bearish sentiment for options nearing their 2024 expiration. With analysts largely advocating for a hold stance and projecting a near 5% potential downside, C3.ai’s horizon appears cloudy.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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