Avoid These 4 Overvalued Tech Stocks: Twilio, Roku, Equinix, And Cloudflare

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In the wake of the stock market slump caused by the spread of the coronavirus last year, the technology sector has seen a meteoric rally in stock prices. The rally has been driven largely by an increased reliance on technology products and services as companies and individuals have sought to stay connected and functional.

The boom in stock prices has caused several technology stocks to trade at their all-time highs and at exorbitant valuations. According to some analysts, the current bullishness of technology stocks may be compared to the dotcom bubble that took place in 2000.

While the growth prospects of many technology companies may warrant premium pricing of their stocks, not every technology company has such a promising outlook. And the inability of their current and expected financials to justify their lofty valuations may lead to a correction in their stock prices in the near future.

Twilio, Inc. (TWLO), Roku, Inc. (ROKU), Equinix, Inc. (EQIX), and Cloudflare, Inc. (NET) are four companies that look extremely overvalued given their weak growth prospects. So, we think it could be wise to avoid them for now.

Twilio, Inc. (TWLO)

TWLO operates a cloud communications platform that helps to develop and integrate communication features into software applications. The company operates in the U.S. and internationally. TWLO’s stock has gained 245.4% over the past year to close Friday's trading session at $435.29.

TWLO’s loss from operations increased 18.6% during the quarter ended Sept. 30, 2020 versus the same period last year. The company also saw a net loss per share of $0.79 compared to $0.64 from the same period last year.

In terms of non-GAAP forward price/earnings, TWLO has recently been trading at 3473.9x, which is significantly higher than the industry average of 27.1x. In terms of forward price/sales, TWLO has been trading at 39.21x, 818.5% higher than the industry average of 4.27x. Moreover, the company’s EPS is expected to decline 33.3% in 2021.

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Katy Lin 2 weeks ago Member's comment

I bought into $EQIX at something like $820/ps a while back. Averaged down to $740. After watching it tank well below $700 once, I sold at the last high. I think I made a few bucks at best. This play is too volatile for me. Congrats to anyone with more patience picking it up at a discount.

Barry Glassman 2 weeks ago Member's comment

I think $TWLO will hit $1000 in 2-3 of years.

Adam Reynolds 2 weeks ago Member's comment

I think $NET has some room to grow still.

Bruce Powers 3 weeks ago Member's comment

Thanks for the share, but I think you are focusing too much on focusing on price/sales. What about the massive growth, disruption of status quo television and unrelenting cord cutting?

No mention of $70 Billion yearly ad budgets which still have some 90% left to migrate to streaming, no mention of #Roku being the market leader for streaming in all measures. The price/sales argument has been thrown around since $ROKU was in the $50 range, and yet it has grown exponentially to be able to sustain its current prices with roughly the same price/sales as it had back then.

Kevin Richards 3 weeks ago Member's comment

Agreed. $700 billion dollar total advertising market worldwide. Probably $1.5 trillion dollars in total market size that $ROKU can tap into.