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Five Tech Stocks That Are Overvalued at the Current Price

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Most tech stocks have had a stellar run over the last 10 years. Among the technology ETFs, the Technology Select Sector SPDR Fund has returned 350% in the previous 10 years. However, investors need to take a look at the valuation of several tech companies.

Tech stocks typically underperform the markets in a recessionary environment. In this story, we’ll look at five tech stocks that we believe are overvalued.

Akamai Technologies

Akamai (AKAM) shares have almost doubled in the last two years. The stock is currently trading at $90.95, which is close to its all-time high. Analysts expect Akamai’s sales to increase by 5.4% to $2.86 billion in 2019 and by 7% to $3.06 billion in 2020.

Its earnings are estimated to rise by 18% in 2019 and 10.1% in 2020 Its earnings are expected to rise at an annual rate of 12% over the next five years. Akamai stock is trading at a forward PE multiple of 19.4x, which indicates that it’s overvalued. Analysts have a 12-month average target price of $91.74 for AKAM, which is 0.8% higher than the current price.

Motorola Solutions

Motorola Solutions (MSI) investors have had a stellar run in the last few years. The stock is up 170% in the last five years. It’s trading at $174.68, which is 4.2% below its 52-week high. MSI has been a leader among mid-cap tech stocks in terms of shareholder returns.

Analysts expect MSI’s sales to increase by 7.5% to $7.9 billion in 2019 and 5.4% to $8.31 billion in 2020. Its earnings are expected to rise by 8.7% in 2019 and 11.3% in 2020. Its earnings could rise at an annual rate of 10.3% over the next five years.

Comparatively, MSI stock is trading at a forward PE multiple of 20.2x. This multiple indicates that it’s overvalued by at least 35% even after considering its 1.3% dividend yield. Analysts have a 12-month average target price of $177.86 for MSI, which is 1.7% higher than the current price.

Intuit

Intuit (INTU) is another tech stock that has generated stellar returns in the last five years. The stock has gained 233% since September 2014. Intuit shares are trading 1.3% below its 52-week high. The stock gained 6% on August 23 after it announced its Q4 of fiscal 2019 results.

Analysts expect Intuit’s sales to grow 10.7% to $7.51 billion in fiscal 2020 (ending in July) and 10.5% to $8.29 billion in fiscal 2021. Its earnings are estimated to rise by 12.1% in fiscal 2020, 12.5% in fiscal 2021, and at an annual rate of 16.5% over the next five years.

Intuit stock is trading at a forward PE multiple of 34.3x. This multiple indicates that it’s grossly overvalued even after considering its dividend yield of a slim 0.73%. Intuit’s earnings rose at a rate of 32.5% in the last five years, which drove the stock higher.

Analysts have a 12-month average target price of $282.37 for Intuit, which is 3.4% lower than its current price.

Accenture: A heavyweight among tech stocks

Shares of leading software and IT consulting firm Accenture (ACN) are trading at $199.14, which is 0.8% below its 52-week high. The $127 billion IT giant has created massive wealth for investors over the last decade. However, it could be time for investors to consider its high valuation before buying more shares.

Analysts expect Accenture’s sales to rise by 9.3% to $43.24 billion in fiscal 2019 and 7.1% to $46.28 billion in fiscal 2020. Its earnings are estimated to increase by 8.8% in fiscal 2019, 9.0% in fiscal 2020, and at an annual rate of 9.09% over the next five years.

Accenture stock is trading at a forward PE multiple of 25x. This multiple indicates that it’s overvalued even after accounting for its dividend yield of 1.5%. Analysts have a 12-month average target price of $195.05 for ACN, which is 2.0% lower than its current price.

VeriSign

VeriSign (VRSN) stock has gained an eye-watering 244% since September 2014. The company’s shares are trading at $205.91, which is 7.2% below its 52-week high. Notably, there are concerns over its high valuation.

Analysts expect VeriSign’s sales to grow by 1.5% to $1.23 billion in 2019 and 5.1% to $1.3 billion in 2020. Its earnings are estimated to rise by 4.0% in 2019, 7.8% in 2020, and at an annual rate of 8.0% over the next five years.

VeriSign stock is trading at a forward PE multiple of 36.4x, which indicates that it’s grossly overvalued at the current price. VeriSign’s earnings rose at an annual rate of 16% in the last five years, which drove the stock higher.

Analysts have a 12-month average target price of $240.33 for VRSN, which is 17% higher than the current price.

Make no mistake—these five tech stocks still have strong fundamentals and might be attractive after a pullback. With the exception of VeriSign, most tech stocks on this list have little or no upside potential according to analysts’ estimates.

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