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Two recent stock events have called into question how markets are pricing stocks. The first event is the OG meme stock, Tesla (NASDAQ: TSLA), hitting a one trillion-dollar market cap. And the second event is EV newcomer Rivian Automotive (NASDAQ: RIVN), surpassing the valuation of Ford Motor Company (NYSE: F) after listing on the NASDAQ.

One way to gauge how overvalued a stock may be is to find its multiple (aka, Price-To-Earnings ratio). In the case of Tesla, it's multiple, as of writing, is ~350. In the case of Rivian, it doesn't have any sales to speak of, so a multiple for this Company is not discernible (as reported by Bloomberg; "Rivian is now the biggest US company with no sales"). Investors can be concerned about high multiples if the Company in question is unlikely to grow its profitability to a level that better reflects the stock's current price. Tesla and Rivian are just two companies that analysts (incl. Tesla’s CEO Elon Musk) commonly point out as overvalued.

Keep reading to learn what other 3 stocks market analysts commonly categorise as overvalued.

Are Markets Overvaluing These 3 Stocks? LULU, NFLX, SQ

Lululemon Athletica (NASDAQ: LULU)

lulu 3 stocks

Several outlets, including Forbes, noted the athleisure wear company to be overvalued in the first half of 2021. Yet, difficult to discourage, investors have continued to support the Company and further bumped up the stock's price. LULU is currently trading at an 15% premium above its first-half peak price (US $404 vs US $465). Its current valuation places its multiple at ~74x earnings.

The momentum behind the stock is driven by its consistent earnings report beats and ambitious sales targets set by management, which are being hit or surpassed with surprising frequency. The Company's outlook is buoyed by a growing (and incredibly loyal) customer base and higher margins. In this way, Lululemon stock may well be within a fair valuation if it continues to ride the growth momentum in which it is currently swept up.

Netflix (NASDAQ: NFLX)

Numerous Analysts were calling Netflix overvalued in 2020, even as the streaming giant reported subscriber growth beats during quarantine lockdowns and beyond. Bearish comments would call attention to the cash-burn needed by Netflix for the foreseeable future to maintain its industry leadership and satisfy its growing user base.

Bullish sentiment could counter this argument by pointing to the Company improving operating margins (e.g., Netflix has improved its operating margin from 16% to 23.5% YTD). However, Netflix does not include content generation spending as an operating cost. Instead, it is considered a fixed cost for the business. Yet, suppose Netflix is going to be burning cash producing content for the foreseeable future. In that case, the improving operating margin might be considered no more an accounting trick than a meaningful metric.

As of writing, Netflix shares are trading at US ~$690, indicating a multiple of approximately ~62 earnings.

Square (NYSE: SQ)

SQ 3 stocks

The digital payment provider Square appears to be firmly in the camp of overvalued tech stock. At least, according to Morningstar analysts, SQ is trading at more than double its "fair value estimate" (US ~$230 vs. $112) with a Price-To-Earnings value of ~240. SQ shares have not traded at US $112.00 or below since July 13, 2020.

While SQ does deliver on growth, it still has a very long way to go to justify its ~240x multiple. Square's dubious long-term outlook is compounded by the increasingly tense competition from PayPal (NASDAQ: PYPL) and Fiserv's (NASDAQ: FISV) Clover application. While younger than Square's payment solution, the latter is already processing more payments across the US, and importantly, growing at a faster pace.

Q3 earning season is currently underway, and most high-profile companies are delivering revenue beats. Yet, Q3 revenue is not the only thing investors are watching. Investors are interested in revenue growth, customer acquisition, and pace of growth alongside the balance sheet. Inflationary and supply chain pressures that may affect the outlook of reporting companies are an additional concern for investors.

TESLA (NASDAQ: TSLA)

Reported: Wednesday, after trading
Revenue: $13.8 billion
Earnings per share: $1.86 profit per share (Non-GAAP)

Tesla's Q3, 2021 earnings were, once again, record-setting for the Company. The Company is increasing sales and has stated it is on track to "achieve 50% average annual growth in vehicle deliveries" at a time when chip shortages are hampering other automakers ability to do so. Improving gross margins (up to 30.5%) was also a significant factor in Tesla performance in Q3.

TSLA shares since earnings report:

Earnings Report TSLA

Netflix (NASDAQ: NFLX)

Reported: Tuesday, after trading
Revenue: $7.5 billion
Earnings per share: $3.19

The popularity of Netflix's series Squid Game hadn't completely filtered into the Company's finances at the time of its Q3, 2021 earnings report. Yet, Netflix delivered a favourable report, with revenue coming in on par and subscriber growth beating expectations. Squid Game IP is estimated to be worth $900 million to Netflix and should help boost its Q4 earnings, which typically get a seasonal bump anyway.

NFLX shares since earnings report:

Earnings Report NFLX

Johnson & Johnson (NYSE: JNJ)

Reported: Tuesday, before trading
Revenue: $23.3 billion
Earnings per share: $2.60

Johnson & Johnson's Q3 earnings-per-share beat expectations, with revenue climbing 10.7% from the previous corresponding period. J&J increased its (bottom-end) revenue guidance for the full year from $93.8 billion - $94.6 billion to $94.1 billion to $94.6 billion. J&J noted that its Covid vaccine would be responsible for $2.5 billion at years end and $502 million of its Q3 revenue.

JNJ shares since earnings report:

Earnings Report JNJ

Proctor and Gamble (NYSE: PG)

Reported: Tuesday, before trading
Revenue: $20.3 billion
Earnings per share: $1.61

PG beat revenue estimates, increasing sales revenue by 5% over the last quarter, but expects to fall short of 2020 revenue. The consumer goods Company also noted that rising producer costs, particularly as it relates to shipping and raw commodity prices, has already had and is going to continue to have a larger-than-anticipated effect on its earnings. In response, PG has begun raising the prices of some of its premium products as a quick remedy to help offset its rising costs.

PG shares since earnings report:

Earnings Report PG

Earning Seasons continues next week:

There are plenty more juicy earning reports due next week.

Facebook, after the bell Monday

Microsoft, Alphabet, Visa, Texas Instruments, and AMD, after the bell Tuesday

Thermo Fisher Scientific, Coca-Cola, McDonald's, and Boeing, before the bell Wednesday

Ford, after the bell Wednesday

Shopify, before the bell Thursday

 Apple, Amazon, and Starbucks after the bell Thursday