3 Overrated Stocks We Approach with Caution

Great things are happening to the stocks in this article. They’re all outperforming the market over the last month because of positive catalysts such as a new product line, constructive news flow, or even a loyal Reddit fanbase.

However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. All that said, here are three stocks that are likely overheated and some you should look into instead.

Sleep Number (SNBR)

One-Month Return: +30.5%

Known for mattresses that can be adjusted with regards to firmness, Sleep Number (NASDAQ:SNBR) manufactures and sells its own brand of bedding products such as mattresses, bed frames, and pillows.

Why Should You Sell SNBR?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Forecasted revenue decline of 5.6% for the upcoming 12 months implies demand will fall off a cliff
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Sleep Number’s stock price of $10.28 implies a valuation ratio of 2.2x forward EV-to-EBITDA. If you’re considering SNBR for your portfolio, see our FREE research report to learn more.

Proto Labs (PRLB)

One-Month Return: +24%

Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE:PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.

Why Is PRLB Risky?

1. Muted 2.4% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7.6 percentage points
3. Earnings per share have dipped by 9.3% annually over the past five years, which is concerning because stock prices follow EPS over the long term

At $48.26 per share, Proto Labs trades at 32.6x forward P/E. To fully understand why you should be careful with PRLB, check out our full research report (it’s free).

Applied Digital (APLD)

One-Month Return: +41.6%

Pivoting from its origins in cryptocurrency mining to become a key player in the AI infrastructure boom, Applied Digital (NASDAQ:APLD) designs and operates specialized data centers that provide high-performance computing infrastructure for artificial intelligence and blockchain applications.

Why Do We Think Twice About APLD?

1. Earnings per share fell by 78.9% annually over the last two years while its revenue grew, partly because it diluted shareholders
2. Negative free cash flow raises questions about the return timeline for its investments
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Applied Digital is trading at $15.50 per share, or 39.5x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why APLD doesn’t pass our bar.

Stocks We Like More

When Trump unveiled his aggressive tariff plan in April 2025, markets tanked as investors feared a full-blown trade war. But those who panicked and sold missed the subsequent rebound that’s already erased most losses.

Don’t let fear keep you from great opportunities and take a look at Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

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