The tech industry was boosted by the near-zero interest rates and robust consumer demand during the pandemic’s height. But, the recent inflationary situation and the Fed’s aggressive stance on it have led to hiring freezes and layoffs as companies anticipate a recession.
Private equity analyst Orlando Bravo believes that there is ‘more pain to come’ for the tech sector, as several fundamentally sound tech firms see their valuations slashed, and the higher rates make their future earnings prospects less attractive.
Investors seem to be bearish on the sector, as the Technology Select Sector SPDR Fund (XLK) is down 25.9% year-to-date.
Amid this backdrop, it might be best to avoid overvalued tech stocks Aurora Innovation, Inc. (AUR), Meta Materials Inc. (MMAT), and Ondas Holdings Inc. (ONDS) in July.
Aurora Innovation, Inc. (AUR)
AUR is a self-driving technology company that focuses on developing Aurora Driver, a platform that provides a suite of self-driving hardware, software, and data services to adapt and interoperate light commercial vehicles and trucks.
In May, AUR and FedEx Corp. (FDX) announced the expansion of their pilot program to autonomously move FDX’s shipments on an additional commercial lane in Texas. However, the gains from introducing the commercial route between El Paso and Fort Worth might be stretched over a long period.
In terms of forward EV/Sales, AUR is trading at 13.41x, which is 768.1% higher than the 1.54x industry average. Its 33.77 forward Price/Sales multiple is 2,784.9% higher than the 1.17 industry average.
In the first fiscal quarter ended March 31, AUR’s net loss per share amounted to $0.07. Net cash provided by investing activities came in at a negative $971.58 million, down 433.8% from the prior-year period. The company’s cash and cash equivalents balance declined 44.5% from the same period the prior year to $520.69 million.
Analysts expect AUR’s EPS estimate to be negative $0.90 for the fiscal year 2023, indicating an 8.4% year-over-year decrease. Its consensus revenue estimate is expected to decline 94.4% year-over-year to $3.63 million in the same year.
The stock has declined 82.9% year-to-date and 67.5% over the past three months to close its last trading session at $1.93.
This bleak outlook is reflected in AUR’s POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. AUR is graded an F in Value and Quality and a D in Growth and Stability. It is ranked #79 out of the 81 stocks in the Technology - Services industry.
In addition to the POWR Rating grades stated above, one can see AUR’s ratings for Momentum and Sentiment here.
Meta Materials Inc. (MMAT)
MMAT develops and manufactures various functional materials and nanocomposites. The company’s offerings include metaAIR, laser glare protection eyewear, and NANOWEB, a transparent conductive film. It is headquartered in Dartmouth, Canada.
On June 28, MMAT announced the closing of its direct offering of shares of its common stock at $1.35 per share and warrants to purchase shares at an exercise price of $1.75 per share. The company intends to use a portion of the net proceeds to cover development costs.
In terms of its forward EV/Sales, MMAT is currently trading at 32.61x, which is 1,107.4% higher than the 2.70x industry average. Its 28.75 forward Price/Sales multiple is 959.5% higher than the 2.71 industry average.
For the first fiscal quarter ended March 30, MMAT’s total operating expenses increased 311.1% year-over-year to $19.61 million, and its loss from operations increased 317.2% from the prior-year quarter to $17.41 million. The company’s loss per share came in at $0.06.
Analysts expect EPS to be a negative $0.05 for the second quarter (ending June 2022).
The stock has declined 85.2% over the past year and 41.2% over the past month to close its last trading session at $1.04.
The POWR Ratings reflect MMAT’s bleak prospects. The stock has an overall F rating, equating to a Strong Sell in our POWR Rating system. MMAT has a Value, Stability, and Quality grade of F and a Sentiment grade of D. It is ranked #45 of 47 in the Technology - Electronics industry.
Click here to see additional POWR Ratings for MMAT (Growth and Momentum).
Ondas Holdings Inc. (ONDS)
ONDS is a global provider of private wireless, drone, and automated data solutions. The company operates in the two segments of Ondas Networks and American Robotics. It offers the FullMAX software-defined radio (SDR) platform.
In June, ONDS announced that its Ondas Networks segment had signed a letter of intent with a partner to develop a new onboard locomotive radio platform for the European rail market. However, the European program is anticipated not to be completed before 2023.
In terms of its forward EV/Sales, ONDS is currently trading at 16.49x, which is 510.7% higher than the 2.70x industry average. Its 18.84 forward Price/Sales multiple is 594.2% higher than the 2.71 industry average.
ONDS’ net revenue decreased 64.8% year-over-year to $410.20 thousand in the first quarter ended March 31. Its gross profit declined by 79.9% from its year-ago value to $122.27 thousand. The company’s net loss amounted to $10.01 million, and its net loss per share was $0.24, up 219% and 100% from the prior-year period.
Street expects ONDS’ EPS to amount to a negative $0.21 for the second quarter (ending June 2022), indicating a decrease of 105% from the prior-year period.
ONDS’ shares have declined 31.9% over the past year and 17.9% over the past six months. It closed the last trading session at $5.38.
ONDS’ POWR Ratings reflect its poor prospects. The company has an overall F rating, equating to a Strong Sell in our proprietary rating system.
ONDS has an F grade for Growth, Value, Stability, and Quality. It is ranked last in the 55-stock Technology - Communication/Networking industry.
To see additional POWR Ratings for Momentum and Sentiment for ONDS, click here.
AUR shares were trading at $1.92 per share on Thursday afternoon, down $0.01 (-0.52%). Year-to-date, AUR has declined -82.95%, versus a -19.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Pricey Tech Stocks to Avoid in July StockNews.com
