Equities endured a challenging 2022, filled with several macroeconomic and geopolitical challenges. Although we entered a new year, the Fed’s intention to keep raising interest rates and a potential recession continue to concern investors.
Last year, the Fed’s seven interest rate hikes showed the desired results as inflation eased for the third consecutive month in December. In the final month of 2022, the Consumer Price Index (CPI) increased by 6.5% over last year and decreased 0.1% from the prior month.
However, the cooling inflation is not expected to deter the Fed from continuing with its interest rate hikes this year as the U.S. jobless claims for the week ended December 31, 2022, fell to their lowest level in more than three months, signaling continued tightness in the labor market.
Minutes from the Fed’s policy meeting in December showed that the central bank officials expect higher interest rates to remain this year until more progress is made on bringing inflation down to its 2% target. Therefore, the economy and the stock market are expected to remain under pressure.
Given this backdrop, it could be wise for investors to unload Roblox Corporation (RBLX), Tellurian Inc. (TELL), and Avaya Holdings Corp. (AVYA) due to their weak fundamentals and poor growth prospects.
Roblox Corporation (RBLX)
RBLX develops and operates an online entertainment platform. The company offers Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud. It serves customers in the United States, the United Kingdom, Canada, Europe, China, the Asia-Pacific, and internationally.
RBLX’s total cost and expenses increased 39.4% year-over-year to $817.71 million for the third quarter ended September 30, 2022. Its loss from operations widened 287.4% year-over-year to $300 million. The company’s adjusted EBITDA declined 62.5% from the prior-year period to $50.88 million.
In addition, its net loss attributable to common shareholders widened 302.4% year-over-year to $297.80 million. Also, its net loss per share attributable to common shareholders came in at $0.50, widening 284.6% from the prior-year quarter.
In terms of forward EV/Sales, RBLX is currently trading at 6.56x, which is 250.2% higher than the 1.87x industry average. Its 68.26x forward EV/EBITDA is 708.7% higher than the industry average of 8.44x. Likewise, its 7.11x forward Price/Sales is 457.2% higher than the industry average of 1.28x.
Analysts expect RBLX’s EPS for the quarter ending December 31, 2022, to widen 92% year-over-year to $0.48. It failed to surpass the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 63.1% to close the last trading session at $32.90.
RBLX’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong 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 is ranked last out of 20 stocks within the Entertainment – Toys & Video Games industry. It has an F grade for Stability and a D for Growth, Value, Momentum, Sentiment, and Quality. To see all the ratings of RBLX, click here.
Tellurian Inc. (TELL)
TELL develops, owns, and operates a global natural gas business and delivers natural gas to customers worldwide. The company is developing a portfolio of natural gas, LNG marketing, and infrastructure assets, including an LNG terminal facility and related pipelines.
In terms of forward EV/Sales, TELL is currently trading at 2.96x, which is 63% higher than the 1.82x industry average. Its 10.20x forward EV/EBITDA is 86.1% higher than the industry average of 5.48x. Likewise, its 2.96x forward Price/Sales is 121.1% higher than the industry average of 1.34x.
TELL’s total operating costs and expenses increased 151% year-over-year to $75.67 million for the third quarter ended September 30, 2022. Its net loss came in at $14.23 million, and its loss per share came in at $0.03. For nine months ended September 30, 2022, its net loss widened 10% year-over-year to $80.87 million.
For fiscal 2022, its EPS is expected to remain negative. For the quarter ending March 31, 2023, TELL’s revenue is expected to decline 10.8% year-over-year to $131.04 million. It failed to surpass the consensus EPS estimates in three of the trailing four quarters.
Its EPS is expected to decline 22.1% per annum over the next five years. Over the past nine months, the stock is expected to decline 64.1% to close the last trading session at $2.03.
TELL’s weak prospects are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Value, Stability, Sentiment, and Quality. Within the Energy – Oil & Gas industry, it is ranked last out of 92 stocks. Click here to see the other ratings of TELL for Growth and Momentum.
Avaya Holdings Corp. (AVYA)
AVYA provides digital communications products, solutions, and services through its subsidiaries for businesses worldwide. The company operates through two segments: Products & Solutions and Services.
AVYA could be near a chapter 11 bankruptcy filing in a bid to revamp its business and overcome its accounting problems. With a debt maturing this year, the company remains skeptical of its ability to continue as a going concern.
In terms of trailing-12-month EV/EBIT, AVYA is currently trading at 76.22x, which is 311.4% higher than the industry average of 18.53x.
AVYA’s revenue for the third quarter ended June 30, 2022, declined 21.2% year-over-year to $577 million. Its gross profit fell 36.4% year-over-year to $259 million. The company’s non-GAAP net loss came in at $20 million, compared to a non-GAAP net income of $73 million in the year-ago period.
In addition, its non-GAAP loss per share came in at $0.24, compared to a non-GAAP EPS of $0.75 in the year-ago period. Also, its adjusted EBITDA declined 68.8% year-over-year to $54 million.
Analysts expect AVYA’s EPS for the quarter ending September 30, 2022, to be negative. Its revenue for the quarter ending September 30, 2022, is expected to decline 23% year-over-year to $585.20 million. It failed to surpass Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has declined 98.3% to close the last trading session at $0.33.
AVYA’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system.
It has an F grade for Sentiment and Quality and a D for Growth, Momentum, and Stability. It is ranked #46 out of 48 stocks in the Technology – Communication/Networking industry. To see AVYA’s rating for Value, click here.
RBLX shares were trading at $32.65 per share on Thursday morning, down $0.25 (-0.76%). Year-to-date, RBLX has gained 14.72%, versus a 3.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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