Investors have a weakness for high-growth names, but not all rosy forecasts are worth taking. Stocks like MicroStrategy, Palantir Technologies, and CrowdStrike have become commonplace with investors who have delivered disproportionately high returns and large multiples. However, before diving into these three expensive stocks, let’s examine their prospects and risks. You may be forced to think twice before investing in these 3 expensive stocks. Let’s find out before you burn a hole in your pocket.
MicroStrategy: A Cryptocurrency Rollercoaster
Business intelligence (BI) company, the now very speculative MicroStrategy, one of the top 3 most expensive names, is, truly, on a very speculative track. Its stock price has risen more than 513% year-to-date mostly because of its Bitcoin holdings. Trading at an unsustainable market multiple of 4,000 times its trailing earnings, its value is now closer to Bitcoin’s performance in its business operations.
The high-stakes, high-reward play of the company’s bitcoin buying up during the uptick in price and thus, probably at the top end of the price spectrum, is their purchase of bitcoin via the markets. Investors will breathe when MicroStrategy’s stock watch rises and falls again, just like cryptocurrencies. If you’re uncomfortable with wild swings, it’s wiser to steer clear of this speculative bet.
Palantir Technologies: Growth or Bubble?
Investors have been impressed by Palantir’s data analytics artificial intelligence approach. 307% this year is the story of growth, and growth is a signpost for how far the company can keep growing before being incorporated into the Nasdaq-100. However, the stock is still holding over twenty times the current year’s earnings it is predicted to make next year, not to mention a multiple well away from fundamentals.
Although AI has tremendous potential, this is again another case of how hype drives the stock price upward. For cautious investors, Palantir’s massive $150 billion market cap may be an indicator to pause and reflect. The issue is whether the company will be able to keep up the momentum or whether a correction is in sight.
CrowdStrike: Cybersecurity at a Premium
CrowdStrike has recovered from a data outage earlier in the year and reported strong financials including $1 billion of quarterly revenue and 29% annual growth. However, despite these unparalleled high figures, the market value of the stock is 80 times the forward profit.
While CrowdStrike, a leader in AI-powered cybersecurity, does offer growth opportunities, its current valuation does not leave much room for mistakes. There are other cybersecurity stocks with more reasonable valuations. The high multiple for the buy-and-hold investor represents a perception of the future growth already being priced into CrowdStrike.
Final Thoughts: Are These 3 Expensive Stocks Worth It?
Having an investment in 3 high-priced assets, e.g., MicroStrategy, Palantir, and CrowdStrike, for example, should not be undertaken lightly. Despite the spectacular returns of this cluster of companies, their valuations are very much inflated and therefore their error margin is very small. To those who prefer a conservative approach to risk appraisal, traditionally valued alternative assets may hold greater attraction.
Hypothetical-based stocks are typically associated with a greater risk of correction, and chasing an unsustainable growth path is a historical risk. If you’re determined to invest in these stocks, diversify your portfolio to mitigate potential losses. On the other hand, conservative investors may perceive the events as riskier and the returns as less attractive.