Be it blue-chip or growth stocks, timing the entry is critical. In the last 12 months, Apple (NASDAQ:AAPL) stock has corrected by 20%. It was among the stocks to sell with negative sentiments for the broad technology sector.
The point I want to make is a good company might not always be a good investment. It’s also impossible to be perfect in terms of timing an entry or exit. However, investors can get some cues from macroeconomic or valuation indicators.
The first two stocks to sell in this list might seem attractive from a long-term perspective. However, I would not be surprised if they decline by 30% in the next one or two quarters. This view is primarily based on valuations even after considering the growth trajectory. A deep correction would be a good opportunity to consider fresh exposure. The last name represents a company with a potentially weak business idea or model.
Let’s discuss the business and valuation perspective for these stocks to sell.
Without doubt, Agilysys (NASDAQ:AGYS) has seen positive business developments and the stock was poised to trend higher. However, after a rally of 67% in six months, AGYS stock looks overvalued.
The stock is trading at a forward price-to-earnings (P/E) ratio of 94.6. This looks expensive with the company reporting revenue growth of 26% for Q2 2023. Further, Agilysys has guided for FY 2023 revenue of $190 million to $195 million. The market capitalization is more than 10 times sales, which looks stretched.
I would therefore keep AGYS in my buying radar, but it’s a stock to sell for the foreseeable future. Considering the macroeconomic headwinds and rich valuations, a 20% to 30% correction seems likely.
As an overview, Agilysys is a provider of hardware and software solutions to the hospitality industry. The company has been winning new contracts, which boosts the long-term growth outlook. Last month, the company signed an agreement with Marriott International (NASDAQ:MAR) to deliver its cloud-native property management system. It’s also worth noting recurring revenue growth has been robust. This will ensure steady EBITDA margin expansion.
Atour Lifestyle (ATAT)
Atour Lifestyle (NASDAQ:ATAT) is a relatively new listing. However, the stock has doubled from its November 2022 listing price of $12.80. At current levels, ATAT stock looks expensive and might be headed for a meaningful correction.
Atour is an operator of themed hotel chains in China. As the country eased Covid-19 restrictions, the stock has surged. However, if we look at fundamentals, there are challenges to navigate.
As an example, Atour reported operating loss of $200 million for the first nine months of 2022. Even for the last financial year, the company had reported operating level losses. With Atour in an expansion phase, losses are likely to sustain. Uncertain economic conditions might also impact hotel occupancy.
I would not be surprised if Atour pursues further equity dilution in the coming quarters. ATAT stock is therefore a sell on rally and at a forward P/E ratio of 104, the stock is expensive.
Electrameccanica Vehicles (SOLO)
The first two stocks discussed seem to be overvalued. However, for Electrameccanica Vehicles (NASDAQ:SOLO), the story is different. With electric vehicle (EV) stocks under pressure, SOLO stock is among the stocks to sell. The reason is the failure of Electrameccanica to gain significant business traction.
It’s worth noting SOLO stock has already surged by 53% in 2023. It seems like a short squeeze rally than upside backed by fundamentals. The rally is an opportunity to sell.
As an overview, Electrameccanica has designed a single-seat electric vehicle. The company is pursuing an asset-light model with production outsourced to China. One of the differentiating factors is the company’s low selling price of $15,500. However, that has failed to attract customers in a significant way.
For Q3 2022, the company produced 103 vehicles. For the same period, the company sold 64 SOLOs. Revenue for the period was just $1.44 million. While Electrameccanica has $173 million for working capital needs, cash burn will sustain on lower delivery volumes. Further dilution of equity is a risk besides the fact the first model might never get significant growth traction.
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.