The Federal Reserve took its funds rate to the 3%-3.25% range in September, the highest since early 2008, and plans on continuing its hawkish rate hikes until inflation comes down to its target level of 2%. The Fed's aggressive monetary policy tightening is raising the odds of a recession. According to JPMorgan’s CEO Jamie Dimon, U.S. stocks could tumble another 20%, while the economy might tip into a recession in 2023.
The International Monetary Fund has cut its global growth forecast to 2.7% for the next year and has warned of a lot of economic pain ahead. Tense geopolitical outlook amid the Russia-Ukraine war, UK’s cost-of-living crisis, and an economic slowdown in China due to the Covid-19 are also hindering global growth prospects.
Given the volatile market scenario, we think investors should steer clear of fundamentally weak stocks Royal Caribbean Cruises Ltd. (RCL) and Carvana Co. (CVNA).
Royal Caribbean Cruises Ltd. (RCL)
RCL, a cruise company, operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands worldwide.
For the fiscal quarter ended June 2022, RCL’s operating loss came in at $218.64 million. Net loss and loss per share came in at $521.58 million and $2.05 as compared to $1.35 billion and $5.29 in the year-ago period.
The consensus EPS estimate for the ongoing fiscal year came in at a negative $6.93. RCL missed the EPS estimates in three of the trailing four quarters.
In terms of its forward EV/Sales, RCL is currently trading at 3.60x, 246.8% higher than the industry average of 1.04x. Its forward EV/EBITDA multiple of 38.71 is 374.4% higher than the industry average of 8.16.
The stock has declined 48.8% over the past year and 41% year-to-date to close the last trading session at $45.36.
RCL’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
RCL has a Stability grade of F and a Value, Sentiment, and Quality grade of D. In the 4-stock F-rated Travel - Cruises industry, it is ranked #3.
Click here to see the additional POWR Ratings for RCL (Momentum and Growth).
Carvana Co. (CVNA)
CVNA operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform allows consumers to research and identify a vehicle, inspect it using 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up, all from their desktop or cell phone.
For the fiscal second quarter that ended June 30, 2022, CVNA’s gross profit declined 28.3% year-over-year to $396 million. The company’s net loss came in at $238 million, compared to a net profit of $22 million in the year-ago period. Also, its loss per share came in at $2.35, compared to an EPS of $0.26 in the year-ago period.
For the quarter ended September 2022, CVNA’s loss per share is expected to widen 413.2% year-over-year to $1.95. Also, its EPS is expected to come in at a negative $8.52 for the ongoing fiscal year. The company failed to surpass Street EPS estimates in each of the trailing four quarters.
In terms of its forward Price/Book, CVNA is currently trading at 14.74x, 533.7% higher than the industry average of 2.33x.
The stock has plummeted 93.2% over the past year and 91.8% year-to-date, closing the last trading session at $19.07.
It is no surprise that CVNA has an overall F rating, equating to a Strong Sell in our proprietary rating system. It also has an F grade for Growth, Stability, Sentiment, and Quality. Within the F-rated Internet industry, CVNA is ranked last out of the 63 stocks.
To see CVNA’s ratings for Value and Momentum, click here.
RCL shares fell $1.71 (-3.77%) in premarket trading Thursday. Year-to-date, RCL has declined -42.50%, versus a -25.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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