10 Most Overvalued Companies According to the Media

In this article, we will take a look at the 10 most overvalued companies according to the financial media.

The significant correction in the global equities markets over the past 11 months of 2022 has significantly reduced the number of overvalued stocks in the market. The correction has been due to uncertain economic circumstances stemming from rising inflation globally due to high commodity prices and geopolitical instability. This has caused the US Federal Reserve and other central banks around the world to increase the benchmark interest rates, which has dampened the growth outlook and heightened the probability of a recession.

The renowned S&P 500 Index is down over 17% since the start of the year and entered the bear market on numerous occasions this year. Meanwhile, the tech-heavy NASDAQ Composite Index has lost over 29% of its value year-to-date (YTD) and has been in the bear market territory since August 2022. Publicly listed companies belonging to the cryptocurrency universe, the marijuana industry, and those that benefitted from the stay-at-home trends during the COVID-19 pandemic in 2020 and 2021 have also seen a significant correction as they have lost as much as 80% to 90% of their underlying values.

However, there are still numerous companies belonging to the healthcare, energy, industrials, media, and tech sectors that are still trading at a premium to their fair value. Recently we brought the most shorted stocks to your attention in an article. Most shorted stocks are the most overvalued companies, according to hedge funds and institutional investors. In this article, we are going to take a look at the overvalued stocks according to financial journalists. Multiple media reports have termed companies like Amazon.com, Inc. (NASDAQ:AMZN), Salesforce, Inc. (NYSE:CRM), and The Walt Disney Company (NYSE:DIS) as overvalued on the basis of certain valuation metrics.

Image by Sergei Tokmakov Terms.Law from Pixabay

Our Methodology

We have referred to numerous leading financial websites such as Forbes, Nasdaq, Investor Place, and Seeking Alpha to shortlist the 10 most overvalued companies. We used a total of 7 articles to report the consensus picks of financial journalists. These websites have termed these companies as overvalued on the basis of fundamentals like forward price-to-earnings (P/E) multiple, enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), and the price-to-earnings-growth ratio. We have ranked these stocks according to the number of articles that flagged them as overvalued.

10 Most Overvalued Companies According to the Media

10. International Business Machines Corporation (NYSE:IBM)

Flagged Overvalued by Number of Articles: 2

International Business Machines Corporation (NYSE:IBM) is an Armonk, New York-based diversified technology and services solutions provider of consulting and cloud computing services, IT infrastructure, and software-as-a-service (SaaS).

Although International Business Machines Corporation (NYSE:IBM) stock offers an attractive one-year forward dividend yield of 4.49% and is a member of the Dividend Aristocrat list, the stock is trading at a forward adjusted P/E ratio of 16.26x as of December 26. This reflects a premium of over 39.3% as compared to the five-year forward P/E multiple of 11.67x. Furthermore, the adjusted PEG ratio of 1.96x is 28.3% higher than the sector median PEG ratio of 1.53x. Analysts think the overall valuation of the company looks expensive. The forward EV/EBIT for International Business Machines Corporation (NYSE:IBM) stands at 17.81x, which shows a premium of 30.36% from the five-year average of 13.66x and a premium of 10.42% against the sector median of 16.13x.

Here’s what St. James Investment Company said about International Business Machines Corporation (NYSE:IBM) in its Q4 2021 investor letter:

“IBM was not the first company to build computers. The distinction belongs to Sperry-Rand’s subsidiary UNIVAC, which introduced the first commercially successful computers in the early 1950s. In this era, IBM did possess the largest research and development department of the business machines industry and quickly caught up, introducing cost-competitive computers a few years after UNIVAC. By the late 1950s, IBM held the dominant market share in computers. IBM also touted a vastly superior sales organization, which used a sales tactic called “paper machines” (the equivalent of today’s “vaporware”). If a competitor’s product was selling well in a market segment that IBM had yet to penetrate, the company would announce a competing product and start taking orders for the “paper machine” long before it was available.

One cannot overstate how powerful IBM was in the computer industry in the 1950s and 1960s. Every competitor rightly worried that if their product worked too well for too long, it was only a matter of
time before an army of IBM salesforce representatives mobilized. In their easily recognizable uniforms of starched white shirts, red ties and blue suits, IBM marketers marched on their customers and offered a more expensive, but much more defensible, choice. “Nobody gets fired for buying IBM” was a common phrase. Even competitors acknowledged that the company excelled at sales. As a UNIVAC executive once complained, ‘It doesn’t do much good to build a better mousetrap if the other guy selling mousetraps has five times as many salesmen.’” (Click here to see the full text)

9. Caterpillar Inc. (NYSE:CAT)

Flagged Overvalued by Number of Articles: 2

Caterpillar Inc. (NYSE:CAT) is a Deerfield, Illinois-based diversified industrials company that has the distinction of being the biggest producer of construction equipment globally. Furthermore, the company has a leading position in the manufacturing of mining equipment, diesel and natural gas engines. Caterpillar Inc. (NYSE:CAT) stock is widely regarded as an industrial bell weather.

The overvaluation of Caterpillar Inc. (NYSE:CAT) can be gauged by the fact that the stock is currently trading at a forward EV/Sales multiple of 2.52x, reflecting a premium of 54.4% from the sector median of 1.63x. Furthermore, this also represents a premium of 5.30% against the five-year forward EV/Sales multiple for the company. Meanwhile, the forward price-to-sales (P/S) multiple stands at 2.02x, which is 59.4% and 11.7% higher than the sector median of 1.27x and the company’s five-year average of 1.81x, respectively. Despite the broad market downturn, Caterpillar Inc. (NYSE:CAT) stock has observed an increase of around 10% since the start of the year due to its defensive capabilities. However, experts now believe there is a high possibility of valuation compression as benchmark interest rates are rising.

Diamond Hill Capital shared its outlook on Caterpillar Inc. (NYSE:CAT) in its Q1 2022 investor letter. Here’s what the firm said:

“We also initiated a position in Caterpillar (NYSE:CAT), one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”

As of Q3 2022, Caterpillar Inc. (NYSE:CAT) was held by 43 hedge funds.

8. Salesforce, Inc. (NYSE:CRM)

Flagged Overvalued by Number of Articles: 2

Salesforce, Inc. (NYSE:CRM) is a San Francisco, California-based provider of cloud-based customer relationship management (CRM) services. The company has the distinction of having 150,000 companies as its customers as of 2022.

The stock is currently trading at a forward P/S ratio of 4.19x, which reflects a premium of 63.7% from the sector median of 2.56x. Rob Oliver at Baird downgraded Salesforce, Inc. (NYSE:CRM) stock from an Outperform to a Hold rating and reduced the target price from $200 to $150. The analyst highlighted that the macroeconomic circumstances have remained challenging for Salesforce, Inc. (NYSE:CRM), and the departure of the company’s key executives recently has raised a red flag for the organization. The analyst considers the departure of notable executives as a surprise. All these developments are expected to pressure the top-line growth prospects of Salesforce, Inc. (NYSE:CRM) in the short term, which would adversely impact the P/S ratio in the future.

Here’s what Aristotle Atlantic Partners, LLC said about Salesforce, Inc. (NYSE:CRM) in its Q3 2022 investor letter:

“We sold Salesforce, Inc. (NYSE:CRM) to reduce our weighting in the Information Technology sector. Salesforce held their investor day, and the company reiterated their organic Fiscal Year 2026 revenue target of $50 billion. This target remains more back-end loaded based on current slowing macroeconomic conditions and requires new annual contract growth well ahead of what the company has been averaging for the past few years. We are skeptical that the company will be able to achieve this revenue target organically and see Merger & Acquisitions (M&A) being key to achieving the growth. While we believe Salesforce has shown good success in growing its non-CRM clouds, we do see more competitive pressures emerging for the Marketing and Customer Service Clouds, specifically on the pricing side during a global economic slowdown.”

7. The Boeing Company (NYSE:BA)

Flagged Overvalued by Number of Articles: 2

The Boeing Company (NYSE:BA) is an Arlington, Virginia-based designer, manufacturer, and seller of aerospace and defense equipment and services.

The producer of the famous Boeing 747 aircraft is currently trading at a forward EV/Sales multiple of 2.27x, which translates into a premium of over 38.9% from the sector median of 1.63x and a premium of 8.07% against the company’s five-year average EV/Sales ratio of 2.10x. The possibility of an economic slowdown increases the likelihood of order cancellations as global business and vacation traveling have taken a serious hit during previous recessions. Furthermore, defense spending could also take a serious hit as governments would be forced to reduce spending to lower fiscal deficits. Experts think The Boeing Company (NYSE:BA) is heavily dependent on capital spending and is a cyclical stock in nature. The company lost 70% of its value during the Financial Crisis of 2007 and 65% of its value when the tech bubble burst in the early 2000s.

Here’s what Meridian Funds said about The Boeing Company (NYSE:BA) in its Q3 2022 investor letter:

“We similarly remained invested in largely out-of-favor The Boeing Company (NYSE:BA) , a global leader in developing and producing commercial jet aircraft. Due to some self-inflicted wounds and a bit of bad luck, as well as dramatic declines in air travel early in the pandemic, investor sentiment for this company has simply been awful. As part of our contrarian thinking, however, we view the business as critical to global transportation needs and see multiple catalysts to improve sentiment. In addition to the current surge in air travel worldwide, ramped up production of the 737 MAX aircraft and the pending restart of 787 Dreamliner deliveries should help turn broader sentiment. Additionally, we anticipate a meaningful inflection in cash flow as Boeing starts delivering aircraft currently in storage as well as the eventual expansion of its production in both core platforms.”

As of Q3 2022, The Boeing Company (NYSE:BA) was held by 42 hedge funds.

6. Chevron Corporation (NYSE:CVX)

Flagged Overvalued by Number of Articles: 3 

Chevron Corporation (NYSE:CVX) is a San Ramon, California-based diversified, integrated oil company that is involved in the upstream, midstream, and downstream segments of the energy value chain.

Chevron Corporation (NYSE:CVX) stock is currently trading at an adjusted forward P/E ratio of 8.76x, reflecting a premium of over 15.2% compared to the sector median adjusted forward P/E multiple of 7.60x. The premium valuation assumes the company needs to grow by high double-digits in the long term. This appears a daunting challenge as Chevron Corporation (NYSE:CVX) has not experienced such an aggressive growth trajectory in the past.

Furthermore, in case of a recession, crude oil prices could decline significantly, which would not also play in favor of Chevron Corporation (NYSE:CVX). The stock has already experienced a meteoric rise of 43.1% since the start of 2022. The premium valuation of the stock was highlighted as the reason for downgrading the stock from a Buy to a Hold rating by Kim Fustier at HSBC. The analyst assigned Chevron Corporation (NYSE:CVX) stock a target price of $177 and added that there is a visible valuation gap between the US-based oil majors and their European counterparts.

Here’s what Diamond Hill Capital said about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:

“Other top contributors in Q1 included multinational energy company Chevron Corp. (NYSE:CVX). The company benefited from increased energy demand as COVID-related economic restrictions eased in tandem with concerns regarding supply interruptions related to Russia’s invasion of Ukraine.”

In addition to Chevron Corporation (NYSE:CVX), Amazon.com, Inc. (NASDAQ:AMZN), Salesforce, Inc. (NYSE:CRM), and The Walt Disney Company (NYSE:DIS) are also among the most overvalued companies according to the media.