The stock market has been on an incredible run over the past 10 months. Even while facing an unprecedented pandemic and the steepest economic downturn in decades, the benchmark S&P 500 ended 2020 higher by 16%. It's picked up right where it left off in the early going of 2021.
Last year, 1 out of 10 publicly traded companies with a market cap of at least $300 million rose by a triple-digit percentage. As of this past weekend, 174 stocks had tripled over the trailing year, with 21 having risen by at least 700%. These are life-changing gains for investors who had the foresight to buy and the patience to hang on.
But not all top-performing stocks are particularly liked by Wall Street. Based on Wall Street's consensus one-year price targets, three of the best-performing stocks over the past year are set to lose between 41% and 71% of their value.
Tesla Motors: Implied decline of 41%
Electric-vehicle (EV) manufacturer Tesla Motors (TSLA -0.06%) might just be the market's most polarizing stock. Following a greater than 700% run higher over the trailing year, Wall Street is looking for a retracement of 41% to its one-year consensus price target.
Obviously, Tesla has done something right, or it wouldn't be up more than 700% in 12 months. In 2020, the company was short only 450 EV deliveries of CEO Elon Musk's promised goal of 500,000. Still, it's an incredible accomplishment for an auto stock built from the ground up.
Tesla also continues to hold tangible competitive advantages in the technology department over other auto stocks. During its September Battery Day event, the company unveiled its next-generation battery, which will improve range by 16%, increase power by a factor of six, and offer five times the capacity. Slowly but surely, the possibility of a $25,000 EV is taking shape.
However, the big knock against Tesla is that it's still not profitable from selling EVs. It's reported a profit in each of the past five quarters, but in four of those five quarters, it was aided by the sale of renewable energy credits. Investors shouldn't have to worry about a nearly $800 billion company still being unable to generate a profit from its product or service.
Skeptics are concerned about auto margins, too. While it's possible Tesla's technology-reliant EVs could produce better overall margins than traditional combustion-engine vehicles, that's not saying much. At a valuation north of 200 times forward-year earnings, Tesla certainly looks frothy.
Blink Charging: Implied decline of 68%
Another top-performing stock that Wall Street isn't too fond of is Blink Charging (BLNK -0.06%). The provider of EV charging equipment and networked charging stations has risen a cool 2,100% over the trailing year, making it the fourth-biggest gainer in the entire market. But after closing north of $47/share last week, Wall Street has the company pegged for a one-year price target of just $15. That implies a decline of 68%.
How does a company go on a 2,100% rampage in just one year? It certainly hasn't hurt that anything having to do with EVs and alternative energy solutions has been unstoppable for the past six months. Back in 2018, the Edison Electric Institute estimated that EVs on American roadways would catapult from 1 million (in late 2018) to 19 million by 2030. This 18-fold increase will need to be met with a huge rollout of EV charging infrastructure throughout the country. Investors see Blink Charging as a beneficiary of this shift.
Additionally, Blink Charging has received a boost from the U.S. elections. Democratic lawmakers generally favor green initiatives. It's possible that Blink Charging could directly benefit from future spending packages.
The best news of all might be that Blink has no cash concerns. The company sold 5.4 million shares of stock earlier this month, raising $221.6 million in net proceeds.
The problem is that Blink is still a very early stage company. The ideas look great on paper, but the company has only generated $3.8 million in revenue through the first nine months of 2020. That's not much, especially when you consider that more than 1 million EVs are already on U.S. roadways.
With ample cash on hand to develop new products and make acquisitions, Blink is probably going to lose money for the foreseeable future. I happen to agree with Wall Street that a $2 billion market cap might be a bit much for a company pacing $5 million in annual sales.
Riot Blockchain: Implied decline of 71%
The high-flying stock with the furthest to fall, according to Wall Street, is Riot Blockchain (RIOT 2.89%). This small-cap cryptocurrency miner has skyrocketed 1,700% over the past 12 months, but it has a consensus price target of only $7.50. Based on its $25.78 closing price on Jan. 15, this works out to downside of 71%.
Riot Blockchain's outperformance is entirely tied to the recent surge in bitcoin, the largest digital token in the world by market cap. Cryptocurrency miners like Riot use high-powered computers to solve complex mathematical equations that validate groups of transactions (a block) as accurate and true. The reward for validating a block on bitcoin's blockchain is currently 6.25 bitcoin. That works out to about $218,000. In other words, a higher price for bitcoin means even more valuable block rewards.
However, there are plenty of reasons to be skeptical about Riot Blockchain. Even with an improved cash position and revenue up 21% through the first nine months of 2020 to $6.7 million, Riot is still an operating mess. The company has lost $16.6 million through nine months of 2020, which is exactly what it lost through the first nine months of 2019. Like Blink, the company has a $1.7 billion-dollar market cap that isn't even assured $10 million in annual sales.
Riot Blockchain's future is also tethered to bitcoin, which I'm not enthused about. Bitcoin is, in my view, the most dangerous investment of 2021. It provides a false sense of scarcity, has minimal real-world utility, and might be easily replaced due to the nonexistent barrier to entry in developing blockchain technology.
Riot Blockchain looks like nothing more than a dart throw -- and a bad one, at that.