Estimated read time: 3 minutes
Publication date: 5th Aug 2021 11:17 GMT+1
As the equity markets continue to trade at record levels it is also imperative for stocks to trade at sky-high valuations. Even from a technical perspective, several stocks might have entered overbought territory warranting a massive pullback, especially if the markets undergo a correction.
Here, we look at three stocks part of the S&P 500 that index that are overbought at current prices.
Advanced Micro Devices
The first stock on my list is Advanced Micro Devices (NASDAQ: AMD) that has a relative strength index (RSI) score of 83.72. An RSI score of over 70 indicates a stock is overbought. AMD stock has been on an absolute tear in the last five years and has returned a staggering 1,705% since August 2016. It has surged 22.7% in 2021 and has gained close to 19% in the last month on the back of stellar quarterly results.
In the June quarter, AMD’s sales almost doubled while adjusted earnings rose 250% year over year to $0.63 per share. The company also raised its guidance for 2021 and expects revenue to grow by 60% year over year, compared to its earlier forecast of 50%.
The semiconductor giant has increased its revenue from $5.32 billion in 2017 to $9.76 billion in 2020. Its operating income has improved from $204 million to $1.37 billion in this period. Wall Street expects sales to grow by 51% to $14.74 billion in 2021 while earnings are estimated to expand at an annual rate of 32.4% in the next five years. We can see why AMD stock continues to trade at a premium given its price to 2022 sales multiple of 8.5x and its price to earnings multiple of 44.2x.
However, analysts expect AMD stock to trade around $105 in the next 12-months which is 14% below its current trading price.
A cybersecurity giant, Fortinet (NASDAQ: FTNT) stock is up 115% in 2021 and has gained 20% in the last month. In the second quarter of 2021, Fortinet sales grew 30% year over year to $801 million, up from $618 million in the year-ago period. Its adjusted net income grew by 16% year over year to $159 million while free cash flow surged 83% to $395 million. Analysts forecast Fortinet sales to touch $743.65 million in Q2 while adjusted earnings were estimated at $143 million.
Fortinet’s management has forecast 2021 sales between $3.21 billion and $3.25 billion which is higher than its prior forecast of sales between $3.08 billion and $3.13 billion, indicating a year over year growth of 25% at the midpoint.
Fortinet has delivered consistent profits to shareholders as its free cash flow margin has been over 30% in the last few years. It ended Q2 with $3.36 billion in liquidity and less than $1 billion in debt.
Despite its stellar metrics, Fortinet stock might pull back given its RSI score of 83.63.
The final stock on my list is Nike (NYSE: NKE) which has an RSI score of 79.5. The retail heavyweight has also gained on the back of stellar quarterly results. Wall Street forecast the company to post sales of $11.05 billion with adjusted earnings per share of $0.51 in the fiscal fourth quarter of 2021. Comparatively, its sales rose 96% year over year to $12.3 billion while adjusted earnings rose to $0.93 in Q4.
The company increased its ad spending by 21% to $1 billion ensuring its remains one of the most recognizable brands on the planet. Its digital sales soared 40% in Q4 allowing Nike to improve its gross margin to 46%, up from 37.5% in the prior-year period.
It ended the fiscal year with $13.5 billion in cash, up from $8.8 billion in fiscal 2020, providing the company with enough flexibility to tide over the ongoing macro-economic uncertainty.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
Copyright © 2016-2023 Finscreener.org. All Rights Reserved.
Disclaimer: Before deciding to trade you should carefully consider your investment objectives, level of experience and your risk appetite. Forex data is a real-time with a 30 second refresh. Prices may not be accurate and may differ from the actual market price. Prices on the website are indicative and solely for informational purposes, not for trading purposes or advice. Please be aware of the risks associated with trading the on financial markets, it is one of the riskiest investment forms. Past performance does not guarantee future profits. We take no responsibility for any losses that may arise as a result of the data contained on this website. The content and the website are provided "as is", without any warranties. In no event will Finscreener.org, its employees, owners, directors, affiliates, partners, data provider, third party or anyone else liable to anyone else for any decision made regarding information on this website.
General partner of Finscreener is SLOVAKODATA, a.s.
This could take some time, please wait.