3 High-Growth TSX Stocks to Avoid This Week

TSX stocks: Many Canadian names are way overvalued at the moment, and they might see a significant correction in the short to medium term.

| More on:
Road signs rerouting traffic

Image source: Getty Images.

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Canadian markets look well in shape for a further rally this year. But does that mean that all TSX stocks will soar higher? No! Many Canadian names are way overvalued at the moment, and they might see a significant correction in the short to medium term. Here are three of them.

Facedrive

Facedrive (TSXV:FD) stock has certainly lost its charm this year. The stock had risen 3,000% since January 2020 and was topping the charts early this year. However, things have changed almost for FD stock and its investors in the last few months. It has cratered from $60 to $15 in just three months since February and is one of the top losers in the last few months.

I think its weakness is still far from over. Its price-to-sales multiple of close to 200 indicates the stock is still way overvalued. Importantly, the stock will likely exhibit more downside, given the grim outlook on both the operational and financial front.

Facedrive stock surged because of its climate-friendly business model and visible operational improvements last year. It has also been planning to expand its ride-sharing business in the U.S. and Europe. However, the pandemic and ensuing restrictions significantly dented its growth plans. In addition, Facedrive acquired several unrelated businesses in 2020, which could do a little to revive its top-line growth.

Facedrive is a company that needs a total revamp. Management’s strong emphasis on core business and reliable revenue growth could bring some respite to investors.

BlackBerry

As the meme stock frenzy seems to have started to wane, BlackBerry (TSX:BB)(NYSE:BB) has lost more than 25% in June 2021. Also, its weaker-than-expected Q1 earnings might continue to weigh on the stock this week.

BlackBerry reported a loss of US$0.11 per share for the quarter against a loss of US$1.14 per share a year ago. Indeed, the cybersecurity company managed to narrow net loss, but its top-line and gross profit margins notably fell during the quarter.

Importantly, BlackBerry operates in some promising areas, like endpoint security management and internet-connected devices. However, its revenues have been on a constant decline for the last several years.

Its QNX platform and growing addressable market indeed offer a rosy outlook for the very long term. However, BB stock looks overvalued at the moment. It still seems away from converting its operational growth into financial growth.

Cineplex

Although many analysts are positive about Cineplex (TSX:CGX) stock amid reopenings, I am still doubtful. I am concerned whether it would do justice to the underlying risk. But notably, CGX stock is up 60% so far in 2021.

The theatre chain company lost $540 million in the last 12 months. Apart from earnings, it dug a deep hole in its balance sheet and increased leverage.

Now, some may think that the worst is certainly over in terms of the pandemic. However, that’s not completely true. People got used to streaming movies in their homes on OTT platforms. This changed behaviour might mean it’ll take years to achieve the pre-pandemic footfall in movie theatres.

Thus, CGX stock may not create significant shareholder value for the next few years. Its already overvalued stock could reverse course in the short to medium term, given its bloated balance sheet and uncertain road to profitability.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry and CINEPLEX INC.

More on Dividend Stocks

growing plant shoots on stacked coins
Dividend Stocks

5 Dividend Stocks to Buy With Yields Upwards of 5%

These five companies all earn tonnes of cash flow, making them some of the best long-term dividend stocks you can…

Read more »

funds, money, nest egg
Dividend Stocks

TFSA Investors: 3 Stocks to Start Building an Influx of Passive Income

A TFSA is the ideal registered account for passive income, as it doesn't weigh down your tax bill, and any…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

Royal Bank of Canada stock is one of the safest TSX dividend stocks to buy. So is CT REIT and…

Read more »

Growing plant shoots on coins
Dividend Stocks

1 of the Top Canadian Growth Stocks to Buy in February 2023

Many top Canadian growth stocks represent strong underlying businesses, healthy financials, and organic growth opportunities.

Read more »

stock research, analyze data
Dividend Stocks

Wherever the Market Goes, I’m Buying These 3 TSX Stocks

Here are three TSX stocks that could outperform irrespective of the market direction.

Read more »

woman data analyze
Dividend Stocks

1 Oversold Dividend Stock (Yielding 6.5%) to Buy This Month

Here's why SmartCentres REIT (TSX:SRU.UN) is one top dividend stock that long-term investors should consider in this current market.

Read more »

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Dividend Stocks

Better TFSA Buy: Enbridge Stock or Bank of Nova Scotia

Enbridge and Bank of Nova Scotia offer high yields for TFSA investors seeking passive income. Is one stock now undervalued?

Read more »

Golden crown on a red velvet background
Dividend Stocks

2 Top Stocks Just Became Canadian Dividend Aristocrats

These two top Canadian Dividend Aristocrats stocks are reliable companies with impressive long-term growth potential.

Read more »