Financial News
3 Inflated Stocks with Questionable Fundamentals
Exciting developments are taking place for the stocks in this article. They’ve all surged ahead of the broader market over the last month as catalysts such as new products and positive media coverage have propelled their returns.
While momentum can be a leading indicator, it has burned many investors as it doesn’t always correlate with long-term success. Keeping that in mind, here are three stocks getting more buzz than they deserve and some you should buy instead.
Domo (DOMO)
One-Month Return: +13.9%
Named for the Japanese word meaning "thank you very much," Domo (NASDAQ: DOMO) provides a cloud-based business intelligence platform that connects people with real-time data and insights across organizations.
Why Is DOMO Risky?
- Customers had second thoughts about committing to its platform over the last year as its billings averaged 1.1% declines
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
Domo is trading at $16.88 per share, or 2.1x forward price-to-sales. To fully understand why you should be careful with DOMO, check out our full research report (it’s free).
Amkor (AMKR)
One-Month Return: +12.8%
Operating through a largely Asian facility footprint, Amkor Technologies (NASDAQ: AMKR) provides outsourced packaging and testing for semiconductors.
Why Do We Pass on AMKR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.4% annually over the last two years
- Gross margin of 14.4% reflects its high production costs
- Poor expense management has led to an operating margin of 7% that is below the industry average
Amkor’s stock price of $27.13 implies a valuation ratio of 20.6x forward P/E. If you’re considering AMKR for your portfolio, see our FREE research report to learn more.
Rocket Lab (RKLB)
One-Month Return: +6.7%
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ: RKLB) offers rockets designed for launching small satellites.
Why Do We Think Twice About RKLB?
- Historically negative EPS is a worrisome sign for conservative investors and obscures its long-term earnings potential
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
At $48 per share, Rocket Lab trades at 34x forward price-to-sales. Read our free research report to see why you should think twice about including RKLB in your portfolio.
Stocks We Like More
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