I know what you’re thinking. It’s far too late to be figuring out which metaverse stocks to sell. The buzz and hype surrounding the metaverse or integrating the real and virtual worlds (via virtual reality/augmented reality technology) peaked quite a while ago.
The “metaverse bubble,” which took shape in late 2021, peaked not that long after, and burst in 2022, has long since deflated. That does not mean the dust has settled for stocks with high exposure to this trend.
Don’t get me wrong, many of the companies making the biggest bets on metaverse technologies, including Meta Platforms (NASDAQ:META) and Apple (NASDAQ:AAPL), are not in this category. For these two “Magnificent Seven” stocks, other factors help to outweigh the disappointment with the metaverse trend.
For other stocks, however, like these seven metaverse stocks to sell, there is still plenty of downside risk, due to both the metaverse bust, along with other negative factors. Consider steering clear of each of them to be your best move.
Matterport (NASDAQ:MTTR) was once one of the hottest stocks out there.
After going public in 2021, the spatial data company (whose technology can be used to produce “digital twin” digital models of real life spaces) zoomed higher, due to the perceived metaverse tailwinds.
Yet after soaring from $10 to prices over $30 per share, MTTR stock has in the nearly two years since fallen down to just over $2 per share. The fading of “metaverse mania,” and the 2022 tech stock sell-off played a big role in this sharp decline. So too has Matterport’s lackluster operating performance.
The company continues to report double-digit revenue growth. Reaching profitability, however, remains a challenge. Negative earnings are expected to persist until at least 2025. With shares in fast-growing but unprofitable companies likely to stay out of favor until interest rates come back down, there’s little reason to go contrarian on MTTR today.
Back in August, my InvestorPlace colleague Ian Bezek declared PTC (NASDAQ:PTC) one of the metaverse stocks to sell.
Primarily, due to the diversified cloud software company’s rich valuation. In Bezek’s view, PTC’s forward earnings multiple of 33 seemed expensive, relative to analyst forecasts for 2023.
Flash forward to now, and PTC stock has only moved slightly lower since then. Today, shares sport a forward multiple of 32.2 times this year’s estimated earnings. As sell-side forecasts call for big earnings growth next year and in 2025, one may counter that PTC’s valuation isn’t excessive.
But if growth is just around the corner, why did Rockwell Automation (NYSE:ROK), a strategic partner and large investor in PTC, decide to completely sell its remaining stake in the company this summer?
Alongside valuation, this is another red flag calling into question an investment in this stock.
Just like with PTC, the metaverse is a secondary catalyst for Qualcomm (NASDAQ:QCOM).
Still, while QCOM stock may be of a metaverse stock, and an aspiring top AI stock, in the market’s view it is just a floundering mobile chip stock. Yes, Qualcomm’s chip supply deal with Apple (NASDAQ:AAPL) unexpectedly extended last month, shares have recently found support.
However, as Louis Navellier and the InvestorPlace Research Staff recently warned, QCOM is not yet out of the woods.
Recent extension notwithstanding, Qualcomm is still scheduled to lose its largest customer (Apple) within a few years. Add in other issues, like another big customer loss (Huawei), as well as the slump in mobile chip demand, and chances are QCOM will keep floundering.
Roblox (NYSE:RBLX) is another company that went public during the 2021 bull market, which spiked in price thanks to the metaverse trend.
Shares in this metaverse gaming company have also been one of the stocks most hard hit by the metaverse bust.
Since November 2021, RBLX stock has tumbled by nearly 79%, but even at substantially lower prices, it remains one of the top metaverse stocks to sell.
After scaling up substantially during the pandemic lockdowns, top-line growth has since decelerated, although it continues to come in at around 15%.
If Roblox were making up for this growth slowdown with greater profitability, this wouldn’t be much of an issue. However, the company continues to report losses, even on an EBITDA basis.
With high uncertainty surrounding its timeline to (and the level of) future profitability, RBLX’s $17.5 billion valuation seems inflated, and at risk of a further compression.
Snap (NYSE:SNAP) is first and foremost a social media stock, but this tech company’s involvement in augmented reality technology has made it somewhat of a metaverse play in recent years.
That said, the company just shuttered its business-focused AR unit.
Snap, like some of the other aforementioned metaverse plays, appears now to be pursuing opportunities in areas like generative AI. Yet while not afraid to make major changes, all bets are off whether the latest turnaround efforts will pay off for SNAP stock investors.
Even as shares have already been knocked lower since July, when Snap issued weak guidance for the coming quarters, I wouldn’t assume that positive surprises are inevitable.
An “also-ran” in the social media space, competing with larger rivals like Meta Platforms for ad dollars, Snap’s upcoming earnings release later this month (scheduled for Oct. 25) could lead to another sharp sell-off for shares.
Unity Software (U)
Unity Software (NYSE:U) is another of the metaverse stocks to sell, for reasons that have little to do with the metaverse trend itself.
As many may already know, Unity (which makes software for video game development) has been the subject of controversy lately.
Pricing controversy, that is. The company was blasted by its customers, after a decision to change its pricing structure. Unity has since rolled back some of these changes.
Analysts believe that the company’s operating performance still stands to materially improve, but you may not want to make that wager.
Why? The valuation of U stock may seem sustainable, with room to grow. At least, based on forecasts calling for earnings growth of around 72% next year, and another 59% in 2025.
However, the pricing changes (although backtracked somewhat) could still fail to drive this level of expected growth, leading to more disappointment/declines for U shares.
Not surprisingly, the metaverse bust has been bad news for Vuzix (NASDAQ:VUZI) shares.
Revenue growth has come in more gradually than once expected. Operating losses have ballooned as well. All of this justifies the stock’s drop from over $30 per share, all the way down deep into penny stock territory.
However, even at around $3.50 per share today, VUZI stock has questionable upside potential, coupled with high downside risk. I’m far from the only one bearish on VUZI. According to Fintel, around 20% of the stock’s outstanding float has been sold short.
This may make shares sound tempting as a short-squeeze play, but chances are the “smart money” shorts are on the money here.
As the high growth needed to sustain Vuzix’s valuation fails to arrive, further declines are very likely. Hence, don’t bet on a squeeze. Adopt the short side’s bearish stance instead.
On the date of publication, Thomas Niel did not hold (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.