When an investor’s interest in a company starts to soar due to positive news, an acquisition, an earnings beat, and a number of other events, it usually causes a drastic increase in the underlying stock price. A situation many investors find themselves in is wanting to buy into a company that is on a great rally. However, the possible downside to investing in companies that are experiencing momentum is that when other investors lose interest and take their money elsewhere, you could be left with a struggling portfolio.
It is very important not to get drawn into companies just because they are experiencing a significant increase in their share price. It’s best to research a stock and see how it has traded in the past and its future outlook before putting money into a company that may have reached its peak.
Below are three companies that, in my opinion, are overbought now. And investors should look to avoid them.
Walt Disney Company (DIS)
Walt Disney (NYSE:DIS) is an entertainment company that owns a number of television and film studios, including Freeform, FX, Fox, National Geographic, A&E, Pixar, Lucasfilm, Marvel, 20th Century, ESPN, and ABC. The company also operates streaming platforms known as Disney+ and Hulu. Disney also has an experiences segment that includes theme parks such as Disney World Resort, Disneyland Resort, Disneyland Paris, and Shanghai Disney Resort.
Since late November of 2022, the stock has fallen by 2%. On November 8, they released their earnings for the fourth quarter and full-year fiscal 2023. It stated that its net income more than doubled, and its revenue grew 5% year-over-year. But, their operating income for their entertainment segment has fallen by 32% in fiscal year 2023 compared to 2022. And their experiences segment has grown by 23% within the same time period.
In its most recent earnings report, some of its numbers, like revenue and net income, look promising. Still, looking deeper, it’s clear that its experiences segment props them up like its theme parks, and its segment for movies, TV shows, and streaming services could be performing better. This makes Disney somewhat unpredictable as to their future, and investors should tread carefully.
Coinbase Global (COIN)
Coinbase (NASDAQ:COIN) operates as an infrastructure company for cryptocurrency. The company offers a platform to trade cryptocurrency and financial accounts and assists users.
Year-to-date, Bitcoin is soaring; it has seen an increase of 127%, which leads investors to purchase shares of companies affiliated with cryptocurrency, such as Coinbase. The company’s earnings report for the third quarter came out on November 2. It stated that total revenue grew by 14% year-over-year. The company reported a net loss shrank from $545 million in Q3 2022 to $2 million in Q3 2023.
Investors have renewed interest in Coinbase following the spike in cryptocurrency prices. They have seen their stock nearly quadruple year-to-date. And who knows how much higher their share price will climb. With the overall uncertainty surrounding the future of cryptocurrency and the fact that Coinbase has been a very violated stock since its inception and during 2022, it lost nearly 90% of its value from the bearish outlook for crypto at the time.
Snap (NYSE:SNAP) is a social technology company that owns and operates Snapchat, a popular visual messaging application.
The company has seen its share price rise by approximately 47%, primarily due to the growth of its active user base. In their third-quarter report, their daily user grew by 12% year-over-year to just over 400 million. But, their most recent earnings report, which was released on October 24, stated a drop increase in revenue of 5%, and their net loss grew by 2% compared to the year before.
Their financial situation is definitely not ideal, with very minimal growth and a persistent issue with profitability. Snap is also a very volatile company, and even with the recent growth, they are still trading at nearly 90% of what they were trading at just two years earlier. Snap looks like a very overbought company that will likely fall back to earth soon.
As of this writing, Noah Bolton 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.