Peloton, Chewy, and Fiverr show tech investors are overvaluing growth and ignoring price, UBS says

Peloton

• UBS analysts downgraded Peloton, Chewy, and Fiverr to "sell" ratings this week.
• The tech companies are "emblematic of a market that values growth over any semblance of valuation."
• The analysts expect the trio to grow strongly, but argue those prospects are priced in.
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Investors are so infatuated with growth stocks that they are unconcerned about how much they're paying for them, UBS equity analysts said in a note this week.

The team led by managing director Eric Sheridan slapped "sell" ratings on Peloton, Chewy, and Fiverr at the start of this week. They argued the stock prices of the premium exercise-equipment maker, the pet-supplies e-retailer, and the online freelance marketplace have outpaced their growth prospects.

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"We collectively see all three as emblematic of a market that values growth over any semblance of valuation
that can be justified on a multiple-year view based on our fundamental analysis," the UBS analysts said.

"While not having a negative view of their business models per se, we can no longer maintain even a neutral rating on certain stocks as companies continue to rerate to multiples and absolute market caps that we believe cannot be supported by our five-year forward forecasts," they added.

Peloton stock fell as much as 7% on Tuesday, Chewy shares slid as much as 4%, and Fiverr slumped as much as 14%. The declines wiped up to $6 billion from their combined market capitalizations.

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Sheridan and his team also issued a warning about the immense hype around tech companies that have cashed in during the pandemic, such as Zoom and Peloton, or gone public in recent months, such as Snowflake and Airbnb.

"Investors need to be wary of the rising trend of bull-market optimism in a handful of businesses that have been either COVID-19 'beneficiaries' and/or have come to the public markets in the last six to 18 months," they said.

The UBS analysts continue to anticipate robust growth and improving profitability at Chewy, Fiverr, and Peloton over the next few years. But they believe those gains are priced in by their current stock prices, meaning the risks of investing may well outweigh the rewards.

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