6 Worst Technology Stocks That Could Be Killing Your Portfolio
NEW YORK (TheStreet) -- Investors love the tech sector. Figuring out which company could be the next Facebook (FB) - Get Report, Google (GOOGL) - Get Report or Apple (AAPL) - Get Report could be extremely lucrative. But there are plenty of tech companies that aren't worth investors' time and money.
Similar to other indexes, the Nasdaq 100 Technology Sector Index is basically flat for the year, up just 0.37% year-to-date. Over the past 12 months though, the index has risen roughly 20%. Getting those big returns -- or bigger -- could mean avoiding the worst performing stocks in the sector. So here they are.
The stocks on this list are all large-cap companies with Sell ratings, D+ or worse ratings from TheStreet Ratings, TheStreet's proprietary research tool.
TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Check out which tech stocks you should sell. Year-to-date returns are based on March 13, 2015 closing prices.
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1. FireEye Inc.
(FEYE) - Get Report
Rating: Sell, D+
Market Cap: $6.7 billion
Year-to-date return: 33.1%
FireEye, Inc., together with its subsidiaries, provides cybersecurity solutions for detecting, preventing, and resolving cyber-attacks.
TheStreet Ratings team rates FIREEYE INC as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate FIREEYE INC (FEYE) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 4107.2% when compared to the same quarter one year ago, falling from -$2.51 million to -$105.73 million.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 44.56%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 3500.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- FIREEYE INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, FIREEYE INC reported poor results of -$3.13 versus -$0.45 in the prior year. This year, the market expects an improvement in earnings (-$1.85 versus -$3.13).
- The gross profit margin for FIREEYE INC is currently very high, coming in at 81.27%. Regardless of FEYE's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FEYE's net profit margin of -73.94% significantly underperformed when compared to the industry average.
- Compared to other companies in the Software industry and the overall market, FIREEYE INC's return on equity significantly trails that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: FEYE Ratings Report
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2. NetSuite Inc.
(N)
Rating: Sell, D+
Market Cap: $7.3 billion
Year-to-date return: -14.8%
NetSuite Inc. provides cloud-based financials/enterprise resource planning (ERP) and omnichannel commerce software suites in the United States and internationally.
"We rate NETSUITE INC (N) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 25.4% when compared to the same quarter one year ago, falling from -$20.21 million to -$25.35 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, NETSUITE INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The debt-to-equity ratio of 1.13 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, N has managed to keep a strong quick ratio of 1.50, which demonstrates the ability to cover short-term cash needs.
- Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, N has underperformed the S&P 500 Index, declining 9.55% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- NETSUITE INC's earnings per share declined by 22.2% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, NETSUITE INC reported poor results of -$1.31 versus -$0.96 in the prior year. This year, the market expects an improvement in earnings ($0.32 versus -$1.31).
- You can view the full analysis from the report here: N Ratings Report
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3. ServiceNow
(NOW) - Get Report
Rating: Sell, D+
Market Cap: $11.4 billion
Year-to-date return: 13.4%
ServiceNow, Inc. provides cloud-based solutions that define, structure, manage, and automate services to enterprise operations in North America, Europe, the Middle East, Africa, the Asia Pacific, and other countries.
"We rate SERVICENOW INC (NOW) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally high debt management risk and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 84.3% when compared to the same quarter one year ago, falling from -$24.23 million to -$44.66 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, SERVICENOW INC's return on equity significantly trails that of both the industry average and the S&P 500.
- The debt-to-equity ratio of 1.04 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, NOW has managed to keep a strong quick ratio of 1.63, which demonstrates the ability to cover short-term cash needs.
- SERVICENOW INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SERVICENOW INC reported poor results of -$1.23 versus -$0.54 in the prior year. This year, the market expects an improvement in earnings ($0.21 versus -$1.23).
- Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.
- You can view the full analysis from the report here: NOW Ratings Report
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4. Workday Inc.
(WDAY) - Get Report
Rating: Sell, D+
Market Cap: $8.2 billion
Year-to-date return: 1.2%
Workday, Inc. provides enterprise cloud applications for global human resources and finance in the United States and internationally. It offers applications for customers to manage critical business functions that enable them to optimize their financial and human capital resources.
"We rate WORKDAY INC (WDAY) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Software industry average. The net income has decreased by 6.2% when compared to the same quarter one year ago, dropping from -$55.98 million to -$59.47 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Software industry and the overall market, WORKDAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
- WDAY has underperformed the S&P 500 Index, declining 18.97% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- WORKDAY INC reported flat earnings per share in the most recent quarter. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, WORKDAY INC reported poor results of -$1.35 versus -$1.00 in the prior year. This year, the market expects an improvement in earnings (-$0.22 versus -$1.35).
- Despite currently having a low debt-to-equity ratio of 0.44, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 3.19 is very high and demonstrates very strong liquidity.
- You can view the full analysis from the report here: WDAY Ratings Report
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5. BlackBerry Ltd.
(BBRY)
Rating: Sell, D
Market Cap: $5.3 billion
Year-to-date return: -10.7%
BlackBerry Limited provides wireless communications solutions worldwide.
"We rate BLACKBERRY LTD (BBRY) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The area that we feel has been the company's primary weakness has been its declining revenues."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market, BLACKBERRY LTD's return on equity significantly trails that of both the industry average and the S&P 500.
- The revenue fell significantly faster than the industry average of 31.7%. Since the same quarter one year prior, revenues fell by 33.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- Despite currently having a low debt-to-equity ratio of 0.50, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that BBRY's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.49 is high and demonstrates strong liquidity.
- BLACKBERRY LTD reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BLACKBERRY LTD reported poor results of -$11.17 versus -$1.20 in the prior year. This year, the market expects an improvement in earnings (-$0.15 versus -$11.17).
- The gross profit margin for BLACKBERRY LTD is rather high; currently it is at 63.81%. It has increased significantly from the same period last year. Regardless of the strong results of the gross profit margin, the net profit margin of -18.66% is in-line with the industry average.
- You can view the full analysis from the report here: BBRY Ratings Report
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6. Splunk Inc.
(SPLK) - Get Report
Rating: Sell, D
Market Cap: $7.6 billion
Year-to-date return: 6.6%
Splunk, Inc. provides software solutions that provide real-time operational intelligence in the United States and internationally.
"We rate SPLUNK INC (SPLK) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 74.8% when compared to the same quarter one year ago, falling from -$32.63 million to -$57.03 million.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Software industry and the overall market, SPLUNK INC's return on equity significantly trails that of both the industry average and the S&P 500.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 28.37%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 56.66% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- SPLUNK INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, SPLUNK INC reported poor results of -$1.81 versus -$0.75 in the prior year. This year, the market expects an improvement in earnings ($0.12 versus -$1.81).
- The gross profit margin for SPLUNK INC is currently very high, coming in at 87.78%. Regardless of SPLK's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SPLK's net profit margin of -38.69% significantly underperformed when compared to the industry average.
- You can view the full analysis from the report here: SPLK Ratings Report