NEW YORK (TheStreet) -- Investors love the tech sector. Figuring out which company could be the next Facebook (FB), Google (GOOGL) or Apple (AAPL) 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.
1. FireEye Inc. (FEYE)
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