Stock Market

The stock market has seen a strong rally in 2023, with the Nasdaq Composite up nearly 30% year-to-date. This has led to overvaluation in many growth stocks. It’s important for investors, even long-term ones, to periodically review their portfolios and identify overvalued stocks. Despite corporate America’s efforts to spin the narrative, here are three stocks that are benefiting from inflation.

In my perspective, you may not want to get too greedy with these three growth stocks right now.

Carvana (CVNA)

Carvana (NYSE:CVNA) has gained attention as a meme stock, but a closer look reveals concerns about its financial position. Despite positive second-quarter projections, the surge appears temporary due to timing anomalies in loan sales. Carvana’s substantial debt of over $8 billion and accumulated losses exceeding $2.2 billion raise financial uncertainties and indicate a challenging state of affairs for the company.

Carvana’s recent optimistic outlook for Q2 is short-lived, driven by a temporary surge in loan sales timing. Lingering effects of the previous year’s used car bubble remain undetermined. Despite apparent growth, Carvana faces financial challenges with significant debt, accumulated losses, and negative cash flows. While its stock performance may seem attractive now, the future poses uncertain obstacles.

GameStop (GME)

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GameStop (NYSE:GME) experienced a tumultuous ride during the meme stock craze of 2021. Ryan Cohen’s investment and subsequent CEO appointment caused a frenzy that propelled GME’s valuation to astonishing heights. However, the company’s financial health remains uncertain, as evidenced by weak sales and significant losses in the first quarter.

GameStop’s share price is significantly below its peak during the meme stock craze, and its plans to transition into an e-commerce giant have not materialized. Sales continue to decline, and the stock remains highly volatile. Following the announcement of its latest earnings and the firing of CEO Matthew Furlong, the stock plummeted by 20%. GameStop reported a 10% decline in revenue for the fiscal first quarter, with sales dropping in the U.S., Canada, and Australia. Currency fluctuations and weak collectible product sales were cited as the reasons for the decline.

Lucid Group (LCID)

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Lucid Group (NASDAQ:LCID), an anticipated powerhouse in the electric vehicle industry, has faced significant challenges since its high-profile SPAC merger. Limited production has resulted in mounting losses, overshadowing its sales figures. Despite a recent $3 billion stock offering, the company still faces concerns over global expansion, launching new models, and cash burn. Delivery rates are lagging, and positive free cash flow is not expected until 2026 or 2027. As a result, the potential for equity dilution poses a significant risk to Lucid’s financial future.

Despite the recent partnership with Aston Martin (OTCMKTS:ARGGY), skepticism remains about its impact on the company’s prospects. Both Lucid and Aston Martin have been experiencing losses, with Aston Martin’s losses doubling in 2022. While Lucid aims to deliver 10,000 units in 2023, this goal seems overly ambitious given the company’s recent history. Additionally, LCID stock has declined by 60% in the past year, indicating investor concerns. If you’re looking to short the EV sector, LCID stock may be a starting point.

On the date of publication, Chris MacDonald 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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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