Last year was brutal for stocks, with massive selloffs amid concerns over the Federal Reserve's regime of aggressive interest-rate hikes to tame the highest inflation in four decades. To steer the U.S. economy back to its target 2% inflation, the Fed has already hiked interest rates from near-zero to the 4.25-4.50% range.
The December jobs report showed the economy gained 223,000 jobs last month, indicating that job growth is slowing but remains strong. Senior central bank officials look forward to the jobs market slackening some more and are likely to keep raising rates before we see a pivot in monetary policy.
While market pundits forecast recession in 2023 to be mild, David Kelly, chief global strategist at J.P. Morgan Asset Management, argued that rather than falling off an “economic cliff,” such a recession would be more like sliding into an “economic swamp,” implying that it could be hard for the economy to get out of it.
Additionally, the World Bank slashed its 2023 global economic growth outlook to 1.7% from its earlier projection of 3%, stating that the global economy is ‘perilously close’ to falling into recession. The bank attributed an ‘unexpectedly rapid and synchronous’ global monetary policy tightening behind its recessionary concerns.
As recession fears are running rampant, it could be wise for investors to steer clear of fundamentally weak stocks Verve Therapeutics, Inc. (VERV), Bed Bath & Beyond Inc. (BBBY), and Party City Holdco Inc. (PRTY).
Verve Therapeutics, Inc. (VERV)
VERV is a clinical-stage genetic medicines company engaged in developing gene-editing medicines for patients to treat cardiovascular diseases. Its lead product candidate is VERVE-101, a single-course gene-editing treatment that permanently turns off the PCSK9 gene in the liver.
For the fiscal 2022 third quarter that ended September 30, 2022, VERV’s total operating expenses increased 90.6% year-over-year to $44.79 million. The company’s loss from operations and net loss widened 86.6% and 98.6% from the year-ago values to $43.86 million and $45.19 million, respectively. In addition, its net loss per share came in at $0.79, widening 68.1% from the previous year’s quarter.
Analysts expect VERV’s EPS to remain negative for fiscal 2022 and fiscal 2023. Also, the company failed to surpass the EPS estimates in three of the trailing four quarters. The stock has plunged 29.6% over the past three months and 18.6% over the past year to close the last trading session at $22.94.
In terms of its forward EV/Sales, it is trading at 921.60x, significantly higher than the industry average of 4.20x. Also, its forward Price/Sales of 1,382x compares to the industry average of 4.78x.
It is no surprise that VERV has an overall rating of D, which translates to Sell, in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VERV has an F grade for Stability and a D for Sentiment and Quality. It is ranked #361 among 397 stocks in the F-rated Biotech industry.
Beyond what we’ve stated above, we’ve also rated VERV for Growth, Value, and Momentum. Get all VERV ratings here.
Bed Bath & Beyond Inc. (BBBY)
BBBY is an omnichannel retailer offering a range of domestic merchandise such as bed linens, bath items, kitchen textiles, home furnishing items, and various juvenile products. It sells its products through its website and under ten brands: Bee & Willow, Marmalade, Nestwell, Haven, Simply Essential, Our Table, Wild Sage, Squared Away, Studio 3B, and H for Happy.
According to a company memo obtained by CNBC, the company has begun to lay off employees as it fights to stay in business and reduce costs.
In the fiscal third quarter that ended November 26, 2022, BBBY’s net sales decreased 32.9% year-over-year to $1.26 billion. Its gross profit declined 58.3% year-over-year to $278.86 million, while its operating loss widened 423.7% from the year-ago value to $450.93 million.
BBBY’s adjusted net loss and adjusted net loss per share came in at $331.23 million and $3.65, respectively, worsening significantly from the year-ago period. Also, its adjusted EBITDA loss came in at $224.99 million, compared to an adjusted EBITDA of $40.64 million in the same quarter the prior year.
Analysts expect BBBY's EPS to be negative $2.30 for the fourth quarter (ending February 2023). Its revenue is expected to decline 32.8% year-over-year to $1.38 billion in the current quarter. BBBY missed the consensus EPS estimates in each of the trailing four quarters.
The stock has declined 79.4% over the past nine months to close the last trading session at $3.66.
BBBY's POWR Ratings reflect this bleak outlook. 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 Quality.
BBBY is ranked #57 of 60 stocks in the Home Improvement & Goods industry. Click here to see additional ratings of BBBY (Growth, Value, and Momentum).
Party City Holdco Inc. (PRTY)
PRTY provides party goods through approximately 830 company-owned and franchise outlets in North America. It offers paper and plastic tableware, metallic and latex balloons, Halloween and other costumes, accessories, novelties, gifts, and stationery under the Party City and Halloween City names.
PRTY’s net sales for the fiscal third quarter ended September 30, 2022, declined marginally year-over-year to $138.01 million, while its gross profit fell 13.7% year-over-year to $158.45 million. The company’s loss from operations came in at $153.53 million, compared to an operating income of $20.05 million in the year-ago period.
Also, its adjusted net loss and adjusted net loss per share amounted to $157.17 million and $1.39 versus an adjusted net income and adjusted net income per share of $2.86 million and $0.02, respectively. In addition, its adjusted EBITDA came in at $2.36 million, representing a 94.4% decline from the previous-year quarter.
In terms of its trailing-12-month EV/EBITDA, PRTY is trading at 50.02x, 409.9% higher than the industry average of 9.81x. Also, its trailing-12-month EV/Sales of 1.20x is 1.8% higher than the 1.18x industry average.
Analysts expect PRTY’s EPS for the quarter ended December 31, 2022, to decrease 62.5% year-over-year to $0.15. Its revenue for the to-be-reported quarter is expected to decline 2.6% year-over-year to $680.30 million. The stock has lost 94.1% over the past year to close the last trading session at $0.35.
PRTY’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and a D for Momentum, Sentiment, and Quality. It is ranked #46 out of 47 stocks in the Specialty Retailers industry. Click here to see the other ratings of PRTY for Growth and Value.
VERV shares were trading at $23.08 per share on Tuesday afternoon, up $0.14 (+0.61%). Year-to-date, VERV has gained 19.28%, versus a 4.13% 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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