Barron’s published an article on March 25 entitled “GameStop Stock Is Having Its Best Day Since Last Year. Earnings Are Tuesday.” As is evident from the headline, the article discusses GameStop’s (NYSE:GME) runup before its Q4 2023 earnings release. Like a lot of overrated stocks to sell, the hype didn’t match the reality.
“Shares of GameStop were up 7.8% to $14.12 on Monday morning. If the gain holds through the close, it would be the stock’s largest percentage increase since Dec. 13, according to Dow Jones Market Data,” Barron’s contributor Angela Palumbo stated in her opening paragraph.
The video game retailer reported earnings on March 27 before the markets opened. Because its sales and earnings missed the Wall Street estimate, its shares fell 15% on the news. It’s down another 13% in the three days since.
Anyone who regularly reads my commentary knows I do not like GameStop or its CEO, Ryan Cohen. I most recently recommended investors sell the meme stock on March 15 before it crashed and burned. It was trading at $14.24 at the time.
Nothing’s changed to alter my opinion. GME is not worth holding. Neither are these three other overhyped stocks.
Sweetgreen (SG)
Sweetgreen’s (NYSE:SG) stock is up 120% year-to-date (YTD) but down 13% from its November 2021 initial public offering (IPO) of $28. I’m going out on a limb with this call because, clearly, there is analyst interest in the provider of healthy restaurant food. Of the nine analysts covering SG stock, six rate it a Buy. However, the median target price is $19.50, well below its current share price. Sweetgreen should definitely be on this list of overrated stocks to sell.
Its shares got a big boost on April 1 when Oppenheimer analyst Brian Bittner doubled his target price to $34, the highest of the nine analysts. “Bittner expects Sweetgreen’s same-store sales to grow 4% annually from 2026 to 2028, while the chain continues to increase the number of units every year by 16%. That means total revenue could increase by 66% from 2025 levels to reach $1.28 billion in 2028,” Barron’s reported.
The company is testing automated salad-making machines for its restaurants as part of its quest to increase margins. By 2028, the analyst expects its earnings before interest, taxes, depreciation and amortization (EBITDA) margin to be nearly 12%.
In 2023, Sweetgreen had $584 million in revenue and broke even on an adjusted EBITDA basis, so it still has a long way to go to meet Bittner’s estimates. The company’s IPO clearly overvalued its stock. It remains an overhyped restaurant stock with a market value of $2.8 billion and no profits, GAAP or otherwise.
Maplebear (CART)
Maplebear (NASDAQ:CART) stock is up 54% YTD. Better known as Instacart, the grocery delivery platform went public in September 2023 at $30 a share, gaining 12% on the first day. It’s up 24% from its IPO price in six months of trading.
On the one hand, Instacart has great clients in Whole Foods, Kroger (NYSE:KR) and Costco (NASDAQ:COST). But on the other hand, its adjusted EBITDA in 2023 was $641 million from $30.3 billion in gross transaction value (GTV), a margin of 2.1%.
I might be the only one skeptical, but my guess is that its biggest customers are making more from their orders sent to end-user customers than Instacart is. Of course, they will continue to use it rather than directly investing in the infrastructure. Unless inflation continues to subside, food prices fall and interest rates get cut, I don’t see the company turning the corner to GAAP profitability. There just won’t be enough business.
CleanSpark (CLSK)
CleanSpark’s (NASDAQ:CLSK) stock is up 50% in 2024 and 505% over the past year. The Bitcoin (BTC-USD) miner’s shares are extremely volatile, falling 10% in late March due to an $800 million share offering that effectively diluted existing shares by nearly 20%.
I don’t think there’s anything wrong with going to the markets for capital when your shares have gained as much as CleanSpark’s have over the past year. That’s one of the reasons you go public in the first place. However, this tactic could get expensive very fast. It seems obvious why CLSK should be on the list of overrated stocks to sell.
In late February, it acquired three Bitcoin mining data centers in Mississippi. It paid $19.8 million for the three facilities, which have an operating hashrate of 2.4 EH/s (exahashes per second).
The interesting thing about Bitcoin miners is that their acquisitions are similar to share repurchases. Every CEO wants to buy back their shares at reasonable prices, but very few do.
On the date of publication, Will Ashworth did not have (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.
