Investing in growth stocks has often been heralded as the fastest route to financial success. However, amid the present volatility in the market, those thinking of embracing this potentially rewarding approach should think twice. In fact, the seven growth stocks to sell below carry higher risk, even more so in the current market environment.
Growth stocks have been incredibly profitable to investors in recent years, but 2022 proved to be a major setback. High-growth companies and speculative stocks experienced severe losses in the bear market. Many companies buckling under adverse economic conditions and steep declines in earnings. As such, it is important for those who have adopted a growth-oriented approach to their investments to carefully reassess their portfolios to minimize risks as much as possible.
One of the top growth stocks to sell is Snap (NYSE:SNAP). While the company has seen growth exceed 50% over the past five years, its user base has started to shift while the company’s strategies to diversify its revenue base proved inadequate. Worse yet, advertiser budgets have decreased at the same time, compounding its troubles further. Even Snap’s hardware products, including its camera glasses, did little to alleviate its troubles. On top of that, Snap is struggling to contend with competitors like TikTok, which continues to grow its presence in the industry. That being said, for Snap to reverse its trajectory it’ll take more than just belt-tightening measures.
Zoom Video (ZM)
Next up on our list of growth stocks to sell is Zoom Video (NASDAQ:ZM), which was once hailed as a hero when the pandemic hit. Consequently, its sales grew by triple-digit margins, peaking at 367% during the fourth quarter of 2021. However, it’s been several months since businesses have scrambled to switch to remote work, and the competition between virtual meeting services is getting even fiercer.
The work-from-home trend is slowly reversing course, and with start-ups emerging left and right, things will only get tougher for Zoom. Analysts recently downgraded its stock, an unfortunate direction from its initial meteoric rise earlier in the pandemic. Whether Zoom can keep its edge in an increasingly saturated market with so many other names vying for a standout spot is uncertain.
Meta Platforms (META)
Meta Platforms’ (NASDAQ:META) venture into the metaverse has been a costly failure so far. While Meta may eventually make up their losses with a successful foray into the metaverse, it seems unlikely that now is the time to gamble on this once high-flying growth stock.
CEO Mark Zuckerberg’s metaverse ambitions have proven to be remarkably risky. Meanwhile, the company’s ad revenue has been taking a hit, and a tragic 11,000 employees saw their jobs cut. Moreover, the Reality Labs segment saw $3.7 billion in losses through the third quarter of 2022, which paints a worrying future. It’s another growth stock to sell.
Stitch Fix (SFIX)
Stitch Fix (NASDAQ:SFIX) made impressive headways in apparel over the last few years. However, with the current economic conditions, apparel is far from being the priority in discretionary spending. In fact, with inflation rising to multi-year highs, its customer base dropped over 10% in its most recent quarter compared to late 2021.
Stitch Fix recently underwent a restructuring resulting in 15% of staff being let go. On top of that, an additional 20% of full-time employees have now been cut, costing between $15 and $20 million. Furthermore, the company recently reported that its revenue had tumbled 21.6% from the prior year. As inflation rises and customer loyalty wanes, Stitch Fix will need to develop innovative strategies to survive this challenging market environment.
Peloton (NASDAQ:PTON) is another one of the top growth stocks to sell immediately. At one time, the company benefitted immensely from the pandemic tailwinds by capitalizing on gym closures. As a result, Peloton was able to double its profits for the first couple of quarters in 2020 on the heels of record sales. However, with the pandemic in the rear-view mirror, the firm has failed to sustain its momentum, with revenue growth averaging a negative 26% in the past four quarters.
Peloton’s financial health continues to worry as it burns through cash at an alarming pace. It burned a whopping $203 million in cash in its third quarter and $342 million in the second. Its cash reserves at the end of last quarter totaled just $935, with debt levels at over $2.3 billion. Its stock is down in the doldrums and is unlikely to pick up the pace anytime soon.
Coinbase (NASDAQ:COIN) was one of the many victims of the FTX meltdown, a potential SEC investigation over its staking product, and ongoing ethical dilemmas between serving customers’ interests and facilitating blockchain progress. Meanwhile, the firm is pumping out millions in losses, which limits its upside potential.
The dark side of the crypto industry has become painfully obvious as investor confidence is shaken to its core. Major crypto exchanges such as Coinbase have taken a mighty hit, losing large portions of their user base due to fear and insecurity. The volatility of the market and the uncertain future of digital assets has seen traders left in limbo, seeking safe havens. Therefore, COIN stock is a growth stock to sell.
Thanks to a heightened focus on sanitization and disinfection, Clorox’s (NYSE:CLX) products flew off shelves, allowing the firm to have strong revenue and earnings growth. However, that’s starting to take an ugly turn in light of the deplorable economic conditions. Unfortunately for Clorox, these conditions are likely to corrode its short-term profits, limiting its upside potential for investors.
Clorox is bearing the brunt of inflationary forces putting pressure on its bottom line, resulting in a hefty drop in its margins. Moreover, revenue growth has been mostly negative over the past seven quarters, while margins have fallen over 30% lower than its 5-year averages. Despite its troubles, its stock is trading at a premium valuation, at over 27 times forward cash flow estimates.
On the date of publication, Muslim Farooque 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