Tech stock investors have seen tremendous volatility over the past few years. While many stocks have soared, not al have. Thus, it is always a good idea to keep in mind which companies are worth adding to, and which are tech stocks to sell. If you look at broader indexes, that may not seem true. However, if you exclude the big cap names, it becomes very obvious that most companies in the tech sector are still finding it hard to appease Wall Street’s appetite for growth.
The Russell 2000 Index, which tracks the smallest 2000 companies in the Russell Index, remains 19% off its peak in 2021. That’s a painful reminder of the volatility the tech sector continues to see. Meanwhile, the Roundhill Magnificent Seven ETF (NASDAQ:MAGS), which tracks the performance of the seven biggest tech giants, delivered a 47% gain over the past year. Even this gain, however, came from a handful of ‘Magnificent 7’ stocks.
With the tech sector’s underbelly exposed, it is a good time to start selling some tech stocks that have too headwinds on the horizon. Many of the companies on this list will likely face bankruptcy at some point in the future. I’m focusing on companies are akin to sinking ships, and it’s best to abandon them before they drag your portfolio down. Here are three tech stocks to sell before they collapse.
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Calix (NYSE:CALX) sells cloud and software-based services to broadband service providers. As we all know, the broader telecom industry has been suffering for the past few years due to high interest rates. Most big telecom firms are sitting on huge amounts of debt and aren’t in the mood to finance big expansion projects.
Calix does not have a debt problem, but the big problem here is that the company is no longer seeing increased demand for its products. The industry is simply slowing down, and the stock trades at a significant premium despite the negative growth. You’re paying almost 50-times forward earnings for this stock. Yes, it is down over 65% from its peak, but still up more than 166% from its February 2020 price.
I expect CALX stock to continue tumbling, as analysts expect revenue to decline 18% this year and stay rangebound below $1 billion for the foreseeable future. Now, the company is expected to see substantial margin expansion, but any company with flat sales shouldn’t trade at such a premium unless they’re yielding substantial dividends. That’s a scenario that seems unlikely for Calix.
Presto Automation (PRST)
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Presto Automation (NASDAQ:PRST) is a business that does look like a decent pick on paper. It is very enticing for drive-thru operators to replace more of their workforce with AI, and Presto offers precisely that.
The company says it can help save on labor costs for drive-thru operators. The situation may not be so simple, though. It would take a lot of money for big drive-thru brands to install AI-powered assistants across all their locations. Moreover, many people prefer human interaction and hesitate to try new technology. It could also cause problems for the people working in back-of-house operations, as AI is still very unreliable.
On top of all that, most drive-thru businesses already have contracts with other businesses that provide them with communications tech. My biggest concern here is that the company’s execution has not been so great either.
Presto has been bleeding cash, with a -369% net profit margin in Q4 and revenue declining 33.5% year-over-year. According to SeekingAlpha, the company had just $3.4 million in cash and cash-equivalent assets. If you compare this figure to $18 million in losses in the recent quarter, it should become apparent why this isn’t a viable business – at least not in its current state. Presto Automation is definitely one of the top tech stocks to sell in my view.
Vuzix (VUZI)
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Vuzix (NASDAQ:VUZI) makes virtual reality and augmented reality products, and also provides software for these products. Now, this is a red-hot industry. And after the Vision Pro release, you’d expect a company in this sector to do well.
However, the company’s results have been a disaster. Vuzix missed Q4 revenue expectations by a whopping 48.7% and earnings per share projections by 122.7%. Losses came in at nearly $20 million compared to just $1 million in revenue, down 63.2% and 84.8%, respectively.
The company had just $26.6 million in cash and cash equivalents remaining as of Q4. Currently, VUZI stock is already down 65.6% over the past year, but I expect much more downside as the company bleeds cash and management has to resort to more dilution – a desperate move that often signals the beginning of the end for struggling companies.
On the date of publication, Omor Ibne Ehsan 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.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
