Inflation declined slightly in July from the multi-decade high level but remained elevated. This and the better-than-expected economic data give the Federal Reserve more reasons to hike the interest rates aggressively until price increases return to the central bank’s target level.
In the last meeting, the Federal Reserve officials indicated that they would unlikely consider pulling back on interest rate hikes until inflation reduces considerably.
According to Ataman Ozyildirim, senior director of economics at the Conference Board, “The Conference Board projects the U.S. economy will not expand in the third quarter and could tip into a short but mild recession by the end of the year or early 2023.”
Since the stock market is expected to remain under pressure on these concerns, it could be wise to avoid fundamentally weak stocks Snap Inc. (SNAP), NIO Inc. (NIO), and Plug Power Inc. (PLUG), which are currently trading at lofty valuations.
Snap Inc. (SNAP)
SNAP functions as a camera company in North America, Europe, and internationally. The company offers Snapchat a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight, that enable people to communicate visually through short videos and images.
For the second quarter ending June 30, 2022, SNAP’s operating loss increased 108% year-over-year to $400.94 million. Its net loss increased 178% year-over-year to $422.07 million, while its non-GAAP loss per share came in at $0.02 compared to an EPS of $0.10 in the previous quarter. The company’s net cash used in operating activities increased 22.7% from its year-ago value to $124.08 million.
SNAP’s EPS is expected to remain negative in the third quarter ending September 2022. The stock has declined 73.3% year-to-date.
The company’s 4.39x forward EV/Sales is 110.1% higher than the 2.09x industry average. In addition, its 4.54x forward Price/Sales is 234.1% higher than the 1.36x industry average.
SNAP’s POWR Ratings are consistent with this bleak outlook. The company has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNAP has an F grade for Stability and Sentiment and a D for Quality. Within the F-rated Internet industry, it is ranked #57 of 65 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for a SNAP, click here.
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles in China. It offers five, six, and seven-seater electric SUVs and smart electric sedans. The company also provides energy and service packages to its users; design and technology development activities.
In the first quarter ending March 31, 2022, NIO’s loss from operations increased 639.7% year-over-year to RMB2.19 billion ($322.52 million). Its adjusted net loss grew 269.3% from its year-ago value to RMB1.31 billion ($192.92 million), while its adjusted loss per share rose 243.5% from its prior-year quarter to RMB0.79.
The EPS is expected to remain negative in the second quarter ending June 2022. The stock has declined 37.2% year-to-date.
The company’s 3.24x forward EV/Sales is 165.6% higher than the 1.22x industry average. In addition, its 3.65x forward Price/Sales is 268.5% higher than the 0.99x industry average.
NIO's weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The stock also has an F grade for Growth and Quality and a D for Value. In the F-rated Auto & Vehicle Manufacturers industry, NIO is ranked #53 of 66 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the NIO rating for Momentum, Sentiment, and Stability here.
Plug Power Inc. (PLUG)
PLUG delivers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, stationary power market, and others in North America and worldwide. It engages in building an end-to-end green hydrogen ecosystem, including green hydrogen production, storage and delivery, and energy generation through mobile or stationary applications.
For the second quarter ending June 30, 2022, PLUG’s total cost of revenue increased 11.5% year-over-year to $183.73 million. Its operating loss increased 63.9% from its year-ago value to $146.91 million, while its net loss grew 73.9% from its prior-year quarter to $173.30 million. The company’s loss per share rose 66.7% from its prior-year quarter to $0.30.
Analysts expect PLUG’s EPS to remain negative in the third quarter ending September 2022. The stock has declined 29.7% over the past nine months.
The company’s 15.41x forward EV/Sales is 800.4% higher than the 1.71x industry average. In addition, its 17.9x forward Price/Sales is 1,242.9% higher than the 1.33x industry average.
PLUG’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F grade, equating to a Strong Sell in our proprietary rating system. It also has an F grade for Sentiment and Quality and a D for Value. PLUG is ranked #86 of 90 stocks in the C-rated Industrial – Equipment industry.
Click here to see the additional POWR Ratings for PLUG (Growth, Stability, and Momentum).
SNAP shares fell $0.34 (-2.71%) in premarket trading Friday. Year-to-date, SNAP has declined -73.29%, versus a -9.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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