In the last trading session, unimpressive earnings reports from major banks weighed in on the broader market, and the major indexes posted a second straight negative week this year. The Dow Jones Industrial Average (DJIA) slipped 0.56%, to 35,911.81. The tech-heavy Nasdaq shed 0.28% for the week, while the Dow and S&P 500 lost 0.88% and 0.30%, respectively.
Furthermore, on January 5, the Federal Reserve revealed that it expects to unwind its COVID-19 era asset purchases sooner and at a faster pace than it originally signaled. JP Morgan Chase & Co. (JPM) has predicted that quantitative tightening will start in July and reach a $100 billion monthly pace by year’s end. This might add to stock market volatility.
In addition, stock market volatility is evidenced by the CBOE Volatility Index’s (^VIX) 17.7% gain over the past three months. Hence, we think fundamentally weak stocks Affirm Holdings, Inc. (AFRM), Robinhood Markets, Inc. (HOOD), and MicroStrategy Incorporated (MSTR) might be best avoided for the near term.
Affirm Holdings, Inc. (AFRM)
AFRM in San Francisco functions as a digital and mobile-first commerce platform. The company’s offerings include point-of-sale payment solutions for its customers and merchant commerce solutions.
On December 28, law firm Block & Leviton reported that it was investigating AFRM for potential securities rights violations. The investigation is in reference to a December 16 Consumer Financial Protection Bureau order that sought information about the company’s facilitation of excessive consumer debt, regulatory arbitrage, and data harvesting. AFRM is under investigation by several other law firms.
In its fiscal first quarter, ended Sept. 30, AFRM’s net loss increased 7,670.3% year-over-year to $306.62 million, while net loss per share attributable to common stockholders of class A and class B rose 1,783.3% to $1.13. Its adjusted operating loss came in at $45.09 million, up 469.4% from the prior-year quarter.
Analysts expect AFRM’s EPS to remain negative until fiscal 2023. In addition, the company has missed consensus EPS estimates in three of the trailing four quarters.
Over the past year, the stock has declined 40.9% in price to close Friday’s trading session at $69.19. It has declined 30.3% over the past month.
AFRM’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
AFRM has a Value grade of F and a Quality, Stability, and Sentiment grade of D. In the 77-stock Technology – Services industry, it is ranked #75. This industry is rated D. Click here to see the additional POWR Ratings for AFRM (Growth and Momentum).
Robinhood Markets, Inc. (HOOD)
HOOD is a popular financial platform operator in the United States that facilitates users’ investments in stocks, ETFs, options, gold, and cryptocurrencies. The company also offers various learning and education solutions. It went public in a traditional IPO on July 29, 2021, on the Nasdaq Global Select Market.
On December 31, the Schall Law Firm, a national shareholder rights law firm, announced that it had filed a Class Action lawsuit against HOOD for alleged violations of federal securities laws. According to the complaint, HOOD suffered from revenue growth issues during its IPO, and it’s supposed ‘significant investments’ in reliability and infrastructure growth were subpar. Based on this, the statements made by the company were allegedly false and misleading. Other law firms, including Wolf Haldenstein Adler Freeman & Herz LLP and Kuznicki Law PLLC have also filed class-action lawsuits against HOOD.
HOOD’s total operating expenses increased 509.1% year-over-year to $1.71 billion in its third fiscal quarter, ended September 30. Its net loss and net loss per share attributable to common stockholders rose 12,250.6% and 4,020%, respectively, from the same period last year to $1.32 billion and $2.06.
The Street expects EPS to remain negative until fiscal 2022.
HOOD’s stock has declined 63% in price over the past three months and 16.4% over the past month to close Friday’s trading session at $15.17.
It is no surprise that HOOD has an overall F rating, which translates to Strong Sell in our POWR Rating system. The stock also has an F grade for Growth and Sentiment and a D grade for Value, Stability, and Quality. It is ranked #164 out of the 166 stocks in the Software – Application industry. The industry is rated F. To see the additional POWR Rating for Momentum, click here.
Click here to check out our Software Industry Report
MicroStrategy Incorporated (MSTR)
MSTR is an enterprise analytics software and services provider. The company’s offerings include MicroStrategy 2021, an enterprise platform that supplies a modern analytics experience. It also offers MicroStrategy Support that helps customers and improves the overall experience.
On January 11, it was reported that MSTR had supported Pfizer Inc. (PFE) in elevating PFE’s data game by ushering in a sustainable data culture. However, it might be some time before the company realizes substantial gains from this partnership.
For the fiscal third quarter, ended Sept. 30, MSTR’s loss from operations increased 145% year-over-year to $49.66 million. Its net loss and loss per share came in at $36.14 million and $3.61, respectively, up 154% and 143.9% from the prior-year quarter.
The $1.39 consensus EPS estimate for the quarter ending March 2022 indicates a 9.7% year-over-year decrease.
MSTR’s shares have declined 33.4% in price over the past three months and 11.9% over the past month to close Friday’s trading session at $499.56.
MSTR’s poor prospects 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 has a Sentiment grade of F and a Growth, Value, Stability, and Quality grade of D. It is ranked #162 in the Software – Application industry.
In addition to the POWR Rating grades we have stated above, one can see the MSTR rating for Momentum here.
AFRM shares were trading at $66.98 per share on Tuesday morning, down $2.21 (-3.19%). Year-to-date, AFRM has declined -33.39%, versus a -3.67% 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.
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