Be careful of bubble stocks and updating bubble methodology Be careful of bubble stocks and updating bubble methodology Be careful of bubble stocks and updating bubble methodology

Be careful of bubble stocks and updating bubble methodology

5 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  We are updating our methodology on the bubble stocks basket introduced in early January as too many of the stocks had very high equity valuations but because they were strong companies. In this updated 'bubble stocks' basket we now require negative earnings expectations over the next 12 months. Many of the names are still the same, but a lot new ones have entered our list. If news or data begin to disappoint against expectations and interest rates continue to climb higher on more inflation, our reflation call for this year, then the most aggressively valued stocks could come under severe pressure.

Following our introduction of the reflation theme which we expect to dominate financial markets over the next 12-18 months, we talked about bubble stocks and introduced 40 stocks that had bubble like characteristics. While all 40 stocks are aggressively valued, some of them have high valuations due to industry specific characteristics (exchange and certain software companies). We have been thinking about the bubble stocks basket since and have chosen to update the methodology. Some of the stocks are the same, but many new stocks are on the list, but we think this list is much better.

Our selection universe is still stocks listed on the exchanges in North America, Western Europe, Japan, Hong Kong, Singapore, and Australia. We filter on market cap (above $ 2bn) and require that stocks have a negative 12-month forward expected earnings per share, and that the 12-month forward EV/Sales (enterprise value to sales) ratio is above 8. Our of an initial universe of 3,776 stocks (those with market cap above $2bn), 194 stocks have negative earnings expectations and a high equity valuation on their expected revenue. Of these stocks, we select the top 40 stocks on market cap (see list below).

NameDomicileMkt Cap (USD mn.)12M Fwd EPS12M Fwd EV/SalesDiff to PT (%)
Kuaishou TechnologyChina213,499-0.8516.2-14.2
Sea LtdSingapore140,384-1.2617.3-15.5
Airbnb IncUnited States130,635-1.3128.1-29.2
NIO IncChina94,795-1.5918.07.9
Snowflake IncUnited States84,570-0.8771.50.1
DoorDash IncUnited States67,743-0.1917.6-22.9
Roku IncUnited States59,111-0.2623.1-21.4
Bilibili IncChina51,601-4.7618.2-29.8
Teladoc Health IncUnited States41,124-0.3020.3-9.9
XPeng IncChina37,228-2.4115.013.9
Affirm Holdings IncUnited States34,499-0.8939.7-5.8
BeiGene LtdChina34,490-9.7835.8-15.1
Unity Software IncUnited States34,299-0.3532.713.7
Plug Power IncUnited States32,156-0.1868.115.0
Seagen IncUnited States31,016-0.1115.914.0
Cloudflare IncUnited States28,050-0.0846.12.6
Splunk IncUnited States27,486-0.2110.820.7
MongoDB IncUnited States25,201-0.9834.1-5.1
Exact Sciences CorpUnited States24,752-1.1413.36.4
GSX Techedu IncChina24,455-3.3411.8-32.1
Farfetch LtdUnited Kingdom23,465-0.6610.3-11.9
DraftKings IncUnited States23,186-1.1626.54.5
GDS Holdings LtdChina20,998-0.1518.6-1.8
10X Genomics IncUnited States20,458-0.3238.9-16.1
Argenx SENetherlands19,397-10.72105.2-12.6
Alnylam Pharmaceuticals IncUnited States19,214-4.7721.03.6
Ping An Healthcare and Technology Co LtdChina18,942-0.9111.62.7
Innovent Biologics IncChina18,305-0.6124.09.0
Guardant Health IncUnited States16,826-1.5040.5-6.9
Zai Lab LtdChina15,781-2.5287.5-12.5
Kingsoft Cloud Holdings LtdChina15,710-2.569.6-22.4
Yatsen Holding LtdChina15,665-1.1710.7-7.0
Oak Street Health IncUnited States15,461-0.4611.10.8 IncUnited States15,370-0.7969.6-12.5 Holdings IncUnited States15,319-0.1957.4-6.7
Canopy Growth CorpCanada15,279-0.9024.2-8.4
Appian CorpUnited States15,229-0.4043.3-52.9
Avalara IncUnited States14,770-0.1621.318.3
Elastic NVUnited States14,429-0.4420.6-1.0
Cree IncUnited States14,240-0.5921.3-21.1
Aggregate / mean1,565,14130.7-6.5

Source: Bloomberg and Saxo Grop

The red thread is that the list is dominated by US and Chinese stocks with the majority within biotechnology, software, media, and gaming. The combined market value for this group is stunningly $1.6trn but even more usual, the average price target is 6.5% below the current price which is something that rarely happens in equity markets as equity analysts typically have a positive bias in their recommendations and price targets. The average forward EV/Sales ratio is 30.7x which is around 10 times higher than the S&P 500 which is one of the most expensive equity indices in the world.

While January performance in equities was driven green transformation and biotechnology stocks, this month so far has been about e-commerce and bubble stocks with the latter segment up 11.2% month-to-date. In our team, we have tried the past couple of days to strike a tone of caution with financial conditions maxing out to the positive side and thus we think reality could begin to disappoint a bit against expectations. If interest rates continue higher, which we expect due to reflation, then the bubble stocks presented here pose a significant downside risk.


Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (
- Full disclaimer (
- Full disclaimer (

Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region


Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.