These 3 Stocks Might Be Getting A Little Too Expensive

Famous investor Warren Buffett once said, "It's much better to buy a good company at a fair price than an honest company at a good price." Buffett's mentor Benjamin Graham also said that "in the short term, the market is a voting machine, but in the long term, it's a scale." In other words, investors should not blindly pay the wrong price for the right company.

Many investors have learned this lesson over the past 18 months, when concerns about rising interest rates helped fuel a bubble in valuations for high-growth technology stocks. However, stocks of many popular technology companies still look a bit overpriced after this long delay. Today, I'll take a look at three of those stocks, Nvidia (NASDAQ: NVDA) , Cloudflare (NYSE: NET) and Roblox (NYSE: RBLX) , and explain why they should trade at lower prices.

1. Nvidia

Nvidia is the world's leading manufacturer of discrete graphics processors for PCs and data centers. It grew significantly during the pandemic, prompting more people to buy new computers for remote work, online lessons, and video games. The increased use of cloud services has also prompted more companies to modernize their data centers.

Unfortunately, after the pandemic ended, Nvidia's growth slowed and PC sales collapsed. The Encounter macros have also prompted many companies to cut costs on data center upgrades. As a result, Nvidia's revenue for fiscal year 2023 (which ended in January) was flat as adjusted earnings per share fell 25%.

But by 2024, analysts expect Nvidia's revenue and adjusted earnings per share to rise 12% and 36%, respectively, as the PC market stabilizes and growth in the artificial intelligence (AI) market drives data center GPU sales. This prediction is reassuring, but much of the AI ​​hype appears to be in stock trading, which this year is 60 times the expected earnings and 22 times the sales.

In comparison, its closest competitor , Advanced Micro Devices , which is experiencing a severe downturn in the PC market, is trading at a profit of 29 times more and 6 times more this year. So it wouldn't be surprising if Nvidia shares halved before they become a bargain for value investors.

2. Cloud flame

Cloudflare's Cloud Content Delivery Network (CDN) delivers digital media to websites. This protects these sites from bot attacks. Market demand for Cloudflare's services increased as companies built more resource-intensive sites to take advantage of faster internet speeds.

Between 2019 and 2022, Cloudflare's revenue grew at a staggering 50% annualized growth rate (CAGR). It also became profitable for the first time in 2022 on a non-GAAP (adjusted) basis. But by 2023, Cloudflare expects its revenue to grow to just 31-32%. This slowdown, which he blames on strong macroeconomic headwinds, coincides with a prolonged cut in dollar rates, which fell from 127% to 117% between the first quarters of 2022 and 2023.

Cloudflare's growth slowdown hasn't been catastrophic, but its stock price has plummeted during a stock-buying frenzy last year. Even after dropping more than 50% in the past 12 months, Cloudflare's stock still doesn't look cheap, as sales are 12 times higher than sales this year. For reference, competing CDN providers, Fastly and Akamai , are currently trading at 5x and 4x this year respectively. So if Cloudflare continues to lose momentum, its stock could drop even more.

3. Roblox

The Roblox gaming platform allows its users to create simple block games without any programming experience. They can also share these games with other users and earn money in the Robux virtual currency. Roblox's growth accelerated during the pandemic as more students stayed at home and spent more time playing.

Roblox's growth slowed when the pandemic ended and these students returned to school. Its gross bookings rose just 5% to $2.9 billion, compared to a 45% increase in bookings in 2021, when a net loss widened from $492 million to $924 million. By 2023, analysts expect reserves to rise 17% to $3.4 billion as the post-pandemic downturn is overcome, but they also expect net losses to widen to $1.05 billion.

At the end of 2022, Roblox was serving 58.8 million daily active users but was still not profitable for two reasons. First, it expands beyond its core cross-user market to appeal to older users and overseas users, but these new users buy less Robux than younger users in the US and Canada. Second, developer trade fees — the money he pays developers to trade Robux — are eating into most of the revenue. It may be able to increase its margins by lowering the Robux exchange rate, but that could alienate its main creators. Roblox stock is not cheap at 6 times its book value this year, so it could still be a lot cheaper if it doesn't address these two pressing issues.

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Leo Sun has no positions in the above shares. Motley Fool is featured and recommended by Advanced Micro Devices, Cloudflare, Fastly, Nvidia and Roblox. Motley Fool has a disclosure policy.

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