Growth stocks have performed well in 2021 as expectations and economic conditions were much different than in 2022. Things have changed dramatically as high inflation and rising interest rates have raised concerns about the odds of a recession and this has made a shift from investing in growth stocks to value stocks.
On July 15, upbeat retail sales were the reason for a stock market rally, and this is a great time to sell the seven growth stocks in this article. The fundamentals are not great, and their growth is not enough to make them attractive, or cheap when expectations and momentum on the stock market have both changed amid a confluence of negative economic news.
It is suggested to sell these growth stocks during a recovery rally or a bounce as the odds of booking a profit will be higher. Below are seven growth stocks to sell:
| TEAM | Atlassian Corporation | $185.1 |
| BILL | Bill.com Holdings | $118.99 |
| PATH | UiPath | $17.36 |
| ZEN | Zendesk | $74.63 |
| S | SentinelOne | $22.86 |
| FIVN | Five9 | $93.96 |
| COUP | Coupa Software | $61.71 |
Atlassian Corporation (TEAM)
Atlassian Corporation (NASDAQ:TEAM) is a software company with products like Jira and Trello claiming that its products are a synonym for innovation at more than 200,00 companies worldwide.
Having such a large audience is very positive for the sales growth that is simply over the past four years. In 2021, the firm reported revenue of $2.09 billion, an increase of 29.42% and the highest figure in the period 2017-2021.
What has gone so wrong with financial performance is that the firm is consistently losing money. Not just small net losses but on the contrary widening net losses. The all-time revenue figure in 2021 resulted in an equally all-time high net loss of -696.32 million in 2021 for the past five years.
Software companies are most of the time synonymous with innovation, but Atlassian Corporation has a management team that just cannot make any profit yet. It is no surprise that the stock has fallen 50% year-to-date.
Bill.com Holdings (BILL)
Bill.com Holdings (NYSE:BILL) is another software firm that provides its customer’s cloud-based software to help them manage their finances, create and pay bills, send invoices, and of course, get paid.
Typically and there are hardly any exceptions to this rule when you pay a bill the company that provides a service like a restaurant for example generates revenue. There is a major difference though in what makes a business both a successful and a viable one. How much income of this revenue turns into profits and remaining cash?
The company has sales growth that makes you at firms think all things seem great. Three consecutive years of rising revenue is a reason to be bullish. This is a myopic investment approach if you do not check the profitability trend.
The net losses have widened over the past four years reaching an all-time high of -98.72 million in 2021. Remember the question about how much cash remains after receiving revenue?
Bill.com Holdings is doing a very lousy job by burning cash, and even worse free cash flow trend has become worse by burning more cash in 2020 and 2021. This is only a growth for net losses which spells a lot of trouble.
UiPath (PATH)
UiPath (NYSE:PATH) is the third software company in this article of growth stocks to sell and it has a very interesting value proposition, as the company states “We make software robots, so people don’t have to be robots.”
Software robots can simplify daily business tasks, free more time, and make businesses that use them more productive. The idea of transforming your business into a fully automated enterprise is a great one, and this has been reflected by the fast revenue growth of UiPath.
The firm has reported revenue growth of 126.42% to 80.76%, and 46.84% in fiscal years 2020, 2021, and 2022 respectively. Two worrisome things are slowing sales growth and unfortunately net losses that have grown too much, too fast. I consider these software robots do not know how to use AI to make profits for UiPath. This is highly problematic.
These bots also must be trained to generate cash rather than burn cash for UiPath, and in general, must get education on their pricing model and that is it essential in the long run for a firm to make profits to survive. This is not happening now, I am not sarcastic but these software robots cannot use AI in favor of UiPath to see the real problem in very poor financial performance.
Zendesk (ZEN)
Zendesk (NYSE:ZEN) builds software for customer service solutions, and for sales solutions helping firms maximize their productivity and grow their revenue.
This is a business model that has a lot of merits, namely providing a great business solution that is in high demand for almost any type of company that sells products. The high quality of customer service should be on the top of the priorities for every business.
Zendesk has managed to have great sales growth as in 2017 it reported revenue of $430.17 million and in 2021 sales of $1.34 billion.
There has been also a lot of growth in SG&A expenses that have caused net losses which as of 2017 have widened. You have a tending up sales growth and trending down growth for net income which is negative. The ideal scenario is for both trends to move up and of course, be positive. Zendesk has a severe business model that is broken.
SentinelOne (S)
SentinelOne (NYSE:S) is offering cybersecurity solutions with its Singularity platform defending other enterprises against cyberattacks. The company is meeting the high demand for its services as the revenue growth was 100.23% in the fiscal year 2021 and another 120.08% in the fiscal year 2022.
I see that the firm is under heavy attack and is losing the battle for profitability as its financial performance is very poor. Innovation and technological updates to support in the best way other companies against cyberattacks have a huge cost to SentinelOne’s profitability. What is worse than losing money? Losing more money over years.
In fiscal years 2020, 20221, and 2022 the net losses were -$76.57 million, -$117.57 million, and -$271.1 million respectively. Shareholders have been diluted in the past year, with total shares outstanding growing by 6.6% which is negative in terms of valuation. The free cash flow trend which is negative does not save the financial situation of SentinelOne but makes it even weaker and a solid reason to sell its stock.
Five9 (FIVN)
Five9 (NASDAQ:FIVN) is a leading provider of cloud contact center software offering its services to many industries such as healthcare, retail, education, and sales @tlemarketing among others.
There is the same pattern with other companies in this article, which makes FIVN stock not attractive enow even after a decline of nearly 33% year-to-date. Consider the fact that when you buy shares of any public company you become a shareholder and trade your hard-earned cash and capital in exchange for a return that will compensate you for the time and amount committed.
If you only see the robust growth the firm has and think it is a company that will give you excitement and capital gains soon, maybe you start investing not with emotions but with analyzing the fundamentals first. We all make mistakes in investing. It is wise to recognize them and stop repeating them.
The pattern mentioned is net losses that over time do not get better but worse. There are so many profitable companies to invest in, why choose this money-losing one? The Price/Book (FWD) ratio of $27.22 signals it is too pricey.
Growth Stocks to Sell: Coupa Software (COUP)
Coupa Software (NASDAQ:COUP) is a software company that provides a cloud-based Business Spend Management (BSM) platform that companies can use to organize and conduct their business spend activities, such as invoices, expenses, contracts management, supplier and treasure management to name a few.
By coincidence, all stocks to sell in this article are in the software and technology industry. Technology is great and makes our lives and businesses better and more effective. However, a great business may have a lousy stock.
The arguments that form a bearish view on Coupa Software are one again like previous software stocks. Robust growth is present but, in this firm, it has signs of slowing down. The sales growth was 38.98% in the fiscal year 2021 and 33.91% in the fiscal year 2022 and as of the quarter ending in Jul. 2021 with sales growth of 7.38% the firm has lower quarterly sales growth.
Net losses have widened and there has been an increase in long-term debt when at the same time retained earnings have widened becoming more negative over time. The company is great at accumulating net losses. This is the exact opposite of what it should do to survive, prosper and deliver value to its shareholders.
On the date of publication, Stavros Georgiadis, CFA 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.