Investors load up on growth stocks in hopes of outperforming popular stock market benchmarks like the S&P 500 and the Nasdaq 100. It’s possible to outshine these indices, but some growth stocks lose their charm.
A corporation that previously reported superb financial growth can see its growth rates wither. If that happens, shareholder value can quickly get decimated. Other growth stocks are well past their primes and look ripe for a correction or a sharp decline as earnings approach.
Not every growth stock is a winner and a big loss from a growth stock can take years to recover from. These are some growth stocks to sell in April before losses accumulate.
Etsy (ETSY)
Etsy (NASDAQ:ETSY) is well removed from its peak during the pandemic. The online marketplace capitalized on rising demand during the onset of the pandemic but failed to retain high growth rates moving forward. Etsy actually had good revenue and net income growth leading up to the pandemic, but growth seems to be over for this once-beloved stock.
Some investors are still holding on to their Etsy shares hoping it stages a recovery. Gross merchandise sales dropped by 0.7% year-over-year (YoY) in Q4 2023. The top line indicates how much the Etsy platform is growing, and the company projects continued declines for this metric.
Revenue increased by 4.3% YoY, largely due to Etsy raising prices on its buyers and sellers. Net income dropped by 24% YoY. Investors can choose from other e-commerce stocks that can still grow due to higher order volumes, not by raising fees on buyers and sellers.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is not a tech company, but it is still valued like one. The stock has a 54 forward P/E ratio and derives 85.7% of its revenue from automobile sales. Since most of its business comes from automobile revenue, it should be valued like other automobile companies. That development alone would result in a significant haircut in Tesla’s price.
The stock is down by 17% over the past year and roughly 30% year-to-date. Losses continue to mount at a time when many stocks are up. The S&P 500 and the Nasdaq 100 have gained 10% and 9% year-to-date, respectively.
The EV maker is facing higher competition from China EV producers. That competition threatens to reduce Tesla’s revenue in an important region and limit its growth opportunities moving forward. Revenue only increased by 3% year-over-year (YoY). The company’s Energy generation and storage revenue increased by 10% YoY, while its services and other revenue segment jumped by 27% YoY.
As we can see based on the total revenue increase of 3% YoY, increases in smaller segments didn’t matter too much. Tesla is an automobile company that only grew its automobile revenue by 1% YoY. That’s why overall growth was low despite its much smaller segments posting respectable growth rates. Tesla needs to have a valuation more in line with an automobile stock than a tech stock.
Snapchat (SNAP)
I was bearish on Snapchat (NYSE:SNAP) before the company released its Quarter 4 earnings report, which turned out to be for shareholders. Revenue only increased by 5% YoY in the quarter and remained roughly flat for the full year. The company is still bleeding through cash and reported a $248 million net loss in the quarter.
Snapchat appropriately crashed after the news and is down by 33% year-to-date. Growth appears to be dead, and the company doesn’t have a viable path to profitability.
The Reddit (NYSE:RDDT) IPO makes Snapchat’s valuation look even more ridiculous. Reddit has an $8 billion market cap, less than half of Snapchat’s. Reddit is growing at a faster pace than Snapchat and recently reported a profitable quarter to close out the year. Sure, Snapchat generates more revenue than Reddit, but respectable growth rates and hopes of profitability seem to be long gone.
Investors can choose from other social media stocks that have more potential.
On the date of publication, Marc Guberti 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.
