Growth stocks have appreciated substantially this year, and most trade at or near their fair value. I don’t believe such stocks should be sold off just yet, especially if they offer dividends. However, many are also trading at excessive valuations after this year’s rally and risk a severe correction once the hype dies down – selling them now is an excellent idea. This had led to the emergence of growth stocks to sell.
Of course, the rally could continue; there’s no guarantee. But taking profits and reversing some positions is essential to beating the market. One of the main reasons why investors underperform the market is due to carelessly holding overvalued stocks while much better deals exist in the market.
To provide more value to our readers, I will exclude some picks from an article I published last month about two growth stocks to sell. I recommend reading it too.
Align Technology (ALGN)
Align Technology (NASDAQ:ALGN) is the maker of Invisalign, the clear aligner system that has revolutionized the orthodontic industry. The company grew rapidly during the pandemic era, and Invisalign is a household name. However, the magic is wearing off.
Align Technology reported declining year-over-year sales growth for the last four quarters, at -3% in Q1. That’s not the worst factor though, the company’s profits are falling sharply. Align Technology had ~$200 million in profits each quarter in 2021, now at just $88 million in Q1. These sluggish figures would suggest that the company is probably trading at a price-to-earnings ratio of 20 or lower at best, but that couldn’t be further from the truth. ALGN surged over 62% year-to-date and trades at a hefty premium of 42 times forward earnings. I don’t see that valuation as justified when the estimated sales growth for each of the next two years sits at 11.5%
That’s not all. One of the main risks is the increasing competition from other players in the clear aligner market, such as SmileDirectClub, Candid, and Byte. These companies offer lower prices, direct-to-consumer models, and online platforms that appeal to cost-conscious and convenience-seeking customers. While Align does have a patent portfolio and a network of doctors that give it an edge over its rivals, it cannot afford to lose market share or pricing power without wrecking its valuation. This makes it one of those growth stocks to sell.
Veneers are also becoming a much better (and popular) alternative for people who want a quick fix. Invisalign is a very expensive product; not everyone can afford it, requiring up to a year of wearing. People can get veneers for cheaper and get results much quicker with the added benefit of whiter teeth. Of course, it may seem like comparing apples to oranges, but not everyone has the time, money, and commitment.
Accordingly, the stock is already at its consensus analyst price target, while the lowest rating calls for a 35% downside.
Celsius Holdings (CELH)
Celsius Holdings (NASDAQ:CELH) is a beverage company producing energy drinks that claim to boost metabolism and burn calories. The company has been enjoying strong sales growth in recent years, and the stock has seen explosive growth. It is up a staggering 2,400% from Feb 2020. However, I believe the stock is overvalued at its current level, and it is time to “CELH.”
One of the main risks is the intense competition from other players in the energy drink market, such as Monster Beverage (NASDAQ:MNST), Red Bull, PepsiCo (NASDAQ:PEP), and Coca-Cola (NYSE:CO). I’d agree that these are more “mature” companies, and Celsius has a niche position in the functional beverage segment. Still, it cannot ignore the threat of losing customers or shelf space to its larger rivals. This puts it firmly in the category of one of those growth stocks to sell.
Personally, the idea of burning fat by drinking energy drinks is questionable. Celsius has faced lawsuits and investigations from consumers and authorities in the past over its health claims and ingredients. I believe these legal actions could result in some trouble for the company going forward. If you’ve bought one of these drinks, you may even be eligible for $250 in compensation. Moreover, Celsius plans to expand into new markets and segments, such as CBD-infused drinks and immunity boosters.
But I digress; let’s go back to the financials and stock performance. It is hard to ignore that Celsius has been pulling tremendous growth recently. The twelve-month revenue figure is going exponential, and it grew over 95% YOY in Q1. The problem is that this growth won’t last forever. It is expected to end the year with ~70% in sales growth, which will decline to 36% next year and then 30% the year after. I believe even that is a little optimistic, considering the competition and scrutiny the company has to deal with.
Simply put, the current forward earnings multiple of 104 times does not reflect reality. Insiders have already dumped $187 million of the stock.
WW Grainger (GWW)
WW Grainger (NYSE:GWW) is a leading distributor of maintenance, repair, and operating products and services. The company has been benefiting from the increased demand for its products and solutions amid the COVID-19 pandemic and the recovery of the industrial sector. It is not as overvalued as some of the other picks on this list, but compared to its historical price and projected earnings, this is another growth stock to sell.
While many of the company’s peers have been facing higher costs for raw materials, labor, transportation, and tariffs, squeezing their margins and profitability, Grainger has been passing on some of these costs to its customers through price increases, but it may not be able to do so indefinitely without hurting its sales volume or market share. All in all, it’s one of those growth stocks to sell.
It is great for profitability, and Wall Street has blessed it with a 72% appreciation in the past year. As a result, you’re paying $782 a pop; a forward P/E ratio of 22x. It may not seem like much, but the company is sliding out of the growth category. Future sales growth is expected to continue the slide to 7% YOY next year and 6.65% in 2025. The profit wave won’t also last forever. After 21% growth this year, it is expected to moderate to just 3.45% in 2025.
Even Gurufocus, a very bullish stock analysis model, points out that the stock is “Modestly Overvalued.”
On the date of publication, Omor Ibne Ehsan 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.