The S&P 500 has soared since the stock market crash last year. This has seen the index reach record highs and led to fears that it’s in a bubble. As such, while I believe there remain plenty of opportunities with US stocks, I also fear that many S&P 500 stocks are now fundamentally overvalued. These include the following two companies.
The EV powerhouse
Tesla (NASDAQ: TSLA) has transformed the automotive industry over the past few years, becoming the global leader in electric vehicles. This has seen revenues increase from $7bn in 2016 to over $31bn last year. It has also managed to reach profitability, posting net incomes of $721m last year. Furthermore, as electric vehicles become more and more mainstream, revenues and profits are expected to continue increasing.
But as revenues have soared, so has the share price. In fact, in 2016, the Tesla share price was just $40, compared to $770 now. This is an increase of 1,825%, a figure far larger than the revenue growth. This leads me to believe that like several other S&P 500 stocks, Tesla is overpriced.
One reason I believe that Tesla is now overpriced is due to the rising competition. For example, many traditional automotive companies, such as Volkswagen and Daimler, are now transitioning into electric vehicles. These companies have significantly larger revenues and profits, yet far lower market caps than Tesla. As such, I feel that these companies are very capable of taking market share from Tesla. New EV companies, such as Lucid Motors, also have their sights on challenging Tesla. Accordingly, although the EV market is expected to get far larger, this rising competition is a risk that cannot be ignored.
The valuation of Tesla is also lofty. In fact, using its 2020 earnings, it has a price-to-earnings ratio of 1,203. Although earnings are forecast to increase drastically over the next few years, this still signals that Tesla may be overpriced. For this reason, I’m leaving Tesla shares on the sidelines for now.
A newly added S&P 500 stock
Since it made its vaccine, the Moderna (NASDAQ: MRNA) share price has soared, reaching highs of $490. Yet at its current price of $430, I still believe that this S&P 500 stock is overpriced.
In line with its most recent trading update, the valuation of Moderna shares is not actually overly lofty. In fact, it managed to reach revenues of $4.3bn, while net income reached $2.8bn. This can be contrasted with a loss of $117m in the same quarter last year. This shows the success of the vaccine. It also means that Moderna has a forward P/E ratio of just 20, which is very good value for a pharma stock.
So, why do I think Moderna shares are overvalued? Well, the vaccine is the company’s only commercially approved product, and it’s likely that demand for this will start to decrease in the long term. This means that such a high share price is heavily reliant on other products, like its HIV vaccine, becoming commercially approved. If this does not happen, the Moderna share price could crash. Therefore, I think shares are overvalued and I’m staying away. I prefer FTSE 100 stocks instead.
Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla and Volkswagen AG. The Motley Fool UK has recommended Moderna Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.