Overpriced stocks can be difficult to identify. They’re often masked under the guise of hype – or even cheap valuations, when in reality they face a frightening amount of risk.
Being able to spot the bad investments is just as important as being able to spot the good ones. Today, let’s take a look at why a green hydrogen fuel cell company, a high-profile pot producer and a budget 5G telecom network provider are some of the most overvalued stocks investors should avoid in 2021.
1. Connect the power
In 2020, Connect the power‘s (NASDAQ: PLUG) gross billings increased 42.5% to $ 337 million from a year ago. The green-energy hydrogen company also has more than $ 5 billion in cash and investments to fund its operations, with a forecast of $ 475 million in gross billing this year. Its fuel cell production site in Rochester, New York, will also be commissioned this year, with a maximum output of 1 gigawatt per year. So why shouldn’t the action be a buy?
It turns out that green hydrogen fuel cells are increasingly obsolete by lithium-ion batteries, the costs of which have fallen by up to 88% over the past decade. Meanwhile, green hydrogen is extremely expensive to produce and transport, and is a bit lackluster in terms of energy efficiency.
To produce just 1 kg of normal hydrogen, you have to burn coal, which releases tons of carbon dioxide into the atmosphere as a byproduct. Making green hydrogen works by applying an electric current to water to separate it into its components hydrogen and oxygen, and then capturing the hydrogen.
But for energy to be green, that electric current must come from a renewable energy source, which is still somewhat inefficient compared to the regular process of using fossil fuels to produce hydrogen. To make matters worse, cars running on hydrogen fuel cells already cost up to four times more fuel each year than those running on electricity. So, until going green becomes a bit cheaper, investors should note that Plug Power technology has little competitive advantage over lithium-ion batteries.
Plug Power is currently trading for 34 times sales (P / S). While this may seem cheap in the context of its own past (it once traded around 75 P / S), the company has just announced that it is facing accounting issues and needs to restate its financial statements through 2018. failing to file your 2020 10-K accurately or on time. It is a good rule of thumb to avoid taking a position in a company if you cannot fully trust its statements. I recommend investors avoid the hype and check out some electric vehicle battery stocks instead.
2. Producers of sundials
Producers of sundials (NASDAQ: SNDL) is a marijuana company struggling to make ends meet. Instead of taking drastic measures to cut his losses, the pot producer has made a habit of looking to the capital markets for money. As of July 2020, the company had less than 200 million shares outstanding. By March of this year, that number had risen to 1.66 billion.
While Sundial now has a market cap of $ 1.85 billion and a cash balance of $ 719 million, its spending problem remains unresolved. Last year, the company lost C $ 206.3 million, a 45% increase from 2019. Keep in mind that Sundial’s revenue was only $ 60.9 million. in Canadian dollars over the same period, down 4.2% from 2019.
Investors can argue that it is always worth keeping Sundial shares, as it takes substantial capital for them to capture market share in the lucrative marijuana market in Canada. Fair enough. The only problem is that Sundial’s jar isn’t particularly popular with consumers either. During the fourth quarter of 2020, its domestic market share actually fell to 2.7% from 3.3% in the third quarter of 2020. Given these reasons and the fact that its shares are trading at 6.8x sales for negative growth, it’s definitely # 1 broth to avoid this year.
With its stocks trading at just 0.89 times earnings and 17 times earnings, many investors are wondering why Nokia (NYSE: NOK) is not considered cheap 5G stock. However, if you look closely, the outlook for Nokia looks a lot less optimistic than what the company has promised it will be.
Last year, the company’s revenue actually fell 6% year-on-year to € 21.9 billion. This is despite a 90% 5G conversion rate from customers around the world and the signing of a five-year commercialization agreement for the technology with T-Mobile. Even having 45 5G networks and 195 commercial contracts has not helped Nokia become more profitable. In 2020, the operating margin of its telecom segment fell to 10.6% against 12.3% in 2019.
And the outlook for the company looks bleaker. He predicts that its turnover will fall to 20.6 billion euros this year, and its operating margin will drop to 7%. Indeed, consumers around the world are rapidly moving away from Nokia’s traditional 4G network for 5G, which the company has yet to fully upgrade to. In an age when almost all telecom providers are banking on adopting 5G, it’s best to stay away from Nokia stocks and look for better ones. alternatives.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.