I think these 2 S&P 500 stocks are highly overvalued
The S&P 500 has soared since the stock market crash last year. This saw the index hit record highs and raised fears that it was in a bubble. As such, while I think there are plenty of opportunities left with US stocks, I am also concerned that many stocks in the S&P 500 are now fundamentally overvalued. These include the following two companies.
The electric power station of the VE
You’re here (NASDAQ: TSLA) has transformed the auto industry in recent years, becoming the world leader in electric vehicles. This has seen revenues grow from $ 7 billion in 2016 to over $ 31 billion last year. It was also successful in achieving profitability, posting net income of $ 721 million last year. In addition, as electric vehicles become more and more mainstream, revenues and profits are expected to continue to increase.
But as earnings have skyrocketed, so has the share price. In fact, in 2016 the Tesla share price was only $ 40, compared to $ 770 now. This is an increase of 1,825%, a figure well above the growth in revenues. This leads me to believe that, like several other stocks in the S&P 500, Tesla is overvalued.
One of the reasons I think Tesla is now overpriced is due to the increasing competition. For example, many traditional automobile companies, such as Volkswagen and Daimler, are now switching to electric vehicles. These companies have significantly larger revenues and profits, but much lower market caps than Tesla. As such, I think these companies are very capable of taking market share from Tesla. New electric vehicle companies, such as Lucid engines, also aim to challenge Tesla. Therefore, even if the market for electric vehicles is expected to become much larger, this growing competition is a risk that cannot be ignored.
Tesla’s valuation is also high. In fact, using his 2020 earnings, he has a price-to-earnings ratio of 1,203. While earnings are expected to increase significantly over the next few years, it still indicates that Tesla may be overvalued. For this reason, I am leaving Tesla shares aside for now.
Newly added S&P 500 stock
Since making his vaccine, the Moderna (NASDAQ: MRNA) The stock price soared, hitting highs of $ 490. Yet at its current price of $ 430, I still think this S&P 500 stock is overvalued.
As per its latest business update, the valuation of Moderna shares is actually not too high. In fact, he managed to achieve revenue of $ 4.3 billion, while net income reached $ 2.8 billion. This can be contrasted with a loss of $ 117 million in the same quarter last year. This shows the success of the vaccine. This also means Moderna has a forward P / E ratio of just 20 which is very good value for pharmaceutical action.
So why do I think Moderna stocks are overvalued? Well, the vaccine is the company’s only commercially approved product, and demand for it is likely to start to decline in the long term. This means that such a high share price is highly dependent on commercial approval of other products, such as its HIV vaccine. If this does not happen, the Moderna share price could collapse. Therefore, I think stocks are overvalued and I stay away. I rather prefer the shares of the FTSE 100.
Stuart Blair has no position in any of the stocks mentioned. The Motley Fool UK owns shares and has recommended Tesla and Volkswagen AG. The Motley Fool UK recommended Moderna Inc. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro . Here at The Motley Fool, we believe that considering a wide range of ideas makes we are better investors.