The market has remained erratic due to worries of an impending recession, as seen by the CBOE Volatility Index's increase of 16.5% over the past three months. With inflation still at more than twice the Fed's 2% target, the majority of economists in a poll by Reuters predict that the central bank would raise interest rates at least twice more in coming months and see no cut by year-end.
The Fed could raise interest rates to 5-5.25% this year, taking borrowing costs even higher. Furthermore, market experts say that the stock market and the economy aren’t out of the woods just yet.
Richard Saperstein, chief investment officer at Treasury Partners, said, “Markets have been reacting favorably to moderating inflation and expectations of a reduced pace of Fed tightening, but the lag effects of the Fed’s tightening so far will slow the economy in the second half of 2023 and cause analysts to slash earnings estimates, which ultimately is a headwind for stocks.”
As the market is projected to remain turbulent, we believe fundamentally weak stocks Snap Inc. (SNAP), Robinhood Markets, Inc. (HOOD), and Peloton Interactive, Inc. (PTON) are best avoided now.
Snap Inc. (SNAP)
SNAP is a camera company offering an application known as Snapchat that connects people worldwide through short videos and images. Its advertising products include Snap Ads and augmented reality (AR) Ads.
During the fourth quarter, which ended December 31, 2022, SNAP’s operating loss widened significantly year-over-year to $287.60 million. Its net loss amounted to $288.46 million versus a net income of $22.55 million, while its adjusted EBITDA decreased 28.6% year-over-year to $233.28 million. Also, its non-GAAP net income per share came in at $0.14, down 36.4% from the prior-year period.
In terms of forward non-GAAP P/E, SNAP is trading at 45.16x, 175.8% higher than the industry average of 16.37x. The stock’s forward EV/EBITDA multiple of 36.73 is 318.1% higher than the industry average of 8.79. Also, its forward Price/Book multiple of 6.27 compares to the industry average of 2.19.
The consensus revenue estimate of $1.01 billion for the current quarter (ending March 31, 2023) indicates a 4.9% decline year-over-year. Its loss per share is expected to amount to $0.01 for the same quarter. The company missed the revenue estimates in each of the trailing four quarters. Over the past year, the shares of SNAP have declined 72.9% to close the last trading session at $10.71.
SNAP’s POWR Ratings reflect this weak outlook. It has an overall rating of D, equating 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.
It has an F grade for Sentiment and a D for Growth, Momentum, and Stability. It is ranked #53 out of 62 stocks in the F-rated Internet industry. Click here to see additional ratings of SNAP (Value and Quality).
Robinhood Markets, Inc. (HOOD)
HOOD is a financial services platform that allows users to invest in stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. The company also offers learning and education solutions, which include Robinhood Snacks, Robinhood Learn, Newsfeeds, Robinhood lists and alerts, and First trade recommendations.
In terms of forward Price/Sales, HOOD is trading at 4.90x, 90.6% higher than the industry average of 2.57x. Likewise, its forward Price/Cash Flow multiple of 16.10 is 54.9% higher than the industry average of 10.39.
For the fourth quarter of fiscal 2022, which ended December 31, HOOD’s transaction-based revenues declined 29.5% year-over-year to $186 million. The company reported a net loss and a loss per share of $166 million and $0.19, widening 60.8% and 61.2% year-over-year, respectively.
Analysts expect HOOD’s EPS to remain negative for the fiscal year 2023. It failed to surpass the consensus revenue estimates in each of the trailing four quarters. The stock has slumped 25.5% over the past year to close the last trading session at $9.92.
HOOD’s bleak outlook is reflected in its overall D rating, equating to Sell in our POWR Ratings system. It has an F grade for Sentiment and D for Value, Stability, and Quality. HOOD is ranked #122 of 137 stocks in the D-rated Software - Application industry.
Click here to access additional ratings for HOOD’s Growth and Momentum.
Peloton Interactive, Inc. (PTON)
PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
PTON’s total revenue decreased 30.1% year-over-year to $792.70 million for the second quarter that ended December 31, 2022. Its gross profit fell 16.4% from the prior-year quarter to $235 million. The company’s net loss and net loss per share came in at $335.40 million and $0.98, respectively. In addition, its adjusted EBITDA loss came in at $122.40 million.
In terms of forward EV/Sales, PTON is trading at 2.30x, 94.1% higher than the industry average of 1.19x. Likewise, its forward Price/Sales multiple of 1.74 is 86.1% higher than the industry average of 0.94. The stock’s trailing-12-month Price/Book multiple of 190.36 compares to the industry average of 2.40.
Street expects PTON’s revenue to decline 26.4% year-over-year to $710.03 million for the third quarter (ending March 31, 2023). Its EPS is expected to remain negative in the fiscal years 2023 and 2024.
Over the past year, the stock has declined 60.7% to close the last trading session at $13.63.
PTON’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Among the 58 stocks in the Consumer Goods industry, it is ranked #56. To see additional ratings of PTON (Growth and Momentum), click here.
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SNAP shares were trading at $10.81 per share on Tuesday morning, up $0.10 (+0.93%). Year-to-date, SNAP has gained 20.78%, versus a 7.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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