Currently, the level of unemployment is very high and there are around 12 million who are out of work. The pandemic has affected over 60% of businesses that have closed doors according to Yelp and this is sad news even though equity markets seem to be performing well. It is important to note that when the economy is affected some of the stocks that have been flying high could plunge in the event of a market crash.
Some of the most expensive stocks currently on the market that could fall and investors need to steer clear of include Beyond Meat (NASDAQ:BYND), Intuitive Surgical (NASDAQ:ISRG), and Salesforce (NYSE:CRM).
Beyond Meat is expensively valued despite solid Q2 sales
One of the stocks that could be risky currently is plant-based meat maker Beyond Meat because it is highly volatile. Interestingly despite the shutdowns, Beyond Meat has been generating solid sales and in Q2 2020 net revenue was up 69% YoY to $113.3 million. In the US the vegan-meat maker has almost doubled its sales to $96.5 million which offsets the declines witnessed in international markets.
The stock is currently trading at 24 times its sales making is expensive. Since beef patties are cheaper than Beyond Meat’s value pack there are concerns that if there are a crash consumers might shift to affordable meat products. This with the high valuation and enhanced volatility are some of the reasons investors should rethink Beyond Meat stock.
Intuitive Surgical stock could crash if the second wave of COVID-19 causes shutdowns
Another stock that investors should be careful with is Intuitive Surgical despite picking up as hospitals resume and start making elective procedures. In Q2 the da Vinci series surgical systems maker reported a 22.5% YoY drop in sales to $852.1 million. The bright spot for the stock is that it is still profitable with Q2 net income being $68 million.
Although Intuitive Surgical seems like a good long term investment it is expensively valued currently. Its P/E ratio of more than 50 makes it expensive which will not be a sound buy for now. This is risky as the highly-priced stock could plunge if the economy crashes due to the second wave of COVID-19.
Salesforce upbeat about Q3 but a recession could hurt its business
Customer relationship company Salesforce has done well during the pandemic because of the growing popularity if the cloud.in Q2 the company saw a 29% YoY growth in sales to $5.2 billion with a pre-tax profit of $839 million which was a fivefold increase from $164 million posted in Q2 2019. In Q3 management expects revenue of $5.24 billion to $5.25 billion.
The risk with the stock is that in the event of a recession growth will decline as businesses consider cutting expenses. Its marketing and sales services might not be important when the economy is depressed and this is an area businesses could overlook. The stock has a forward P/E of 80 which makes it expensive than the multiple of 50 the stock was trading a few months ago.