During his annual policy speech in Jackson Hole last month, Fed Chairman Jerome Powell indicated that the Fed would continue to tighten policy to bring inflation down to its target level. He predicted that the economy would experience "some pain." Since the Jackson Hole conference, the market has witnessed a massive sell-off on investors’ concerns over a potential recession.
As an improved jobs report increases the odds of the Fed maintaining its hawkish stance, the market downturn is expected to continue.
Nomura economists recently revised their forecast for the Federal Reserve's rate hike. Now they anticipate a 0.75 percentage point increase this month rather than a 0.50 percentage point increase. Goldman Sachs and Bank of America’s forecasts are similar to what Nomura expects.
In addition, according to economist Johns Hopkins, next year will be "a whopper" of a recession. "We will have a recession because we have had five months of zero M2 growth, money supply growth, and the Fed isn't even looking at it," he said.
Given this backdrop, we think it could be wise to avoid fundamentally weak stocks Peloton Interactive Inc. (PTON), Revolve Group Inc. (RVLV), and Vinco Ventures Inc. (BBIG).
Peloton Interactive Inc. (PTON)
PTON sells interactive fitness products in North America and internationally. 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 announced plans to cut approximately 800 jobs last month to reduce its operating footprint and costs. In addition to job cuts, the company announced price increases on certain products and the outsourcing of functions such as equipment deliveries and customer service to third-party vendors. The company will also gradually close many of its retail showrooms beginning next year.
It also plans to lay off roughly half of its customer service employees, primarily based in Plano and Tempe, Arizona. Third-party firms will be used to handle support requests as needed.
PTON's total revenue decreased 27.6% year-over-year to $678.7 million for the fourth quarter ended June 30, 2022. Its operating loss grew 298.6% from the prior-year quarter to $1.20 billion. The company’s net loss surged 297.3% from the year-ago value to $1.24 billion. Its loss per share grew 250.5% year-over-year to $3.68.
Street expects PTON's revenues to decline 14.4% year-over-year to $3.07 billion in fiscal 2022. In addition, its EPS is expected to decline by 76.5% per annum over the next five years and remain negative in the current year and next year. The stock has declined 90.7% over the past year and 23.6% over the past month.
PTON's POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates 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.
PTON has been graded an F grade for Quality and Sentiment and a D for Value. Within the C-rated Consumer Goods industry, it is ranked #56 of 58 stocks. To see additional POWR Ratings for Growth, Stability, and Momentum for PTON, click here.
Revolve Group Inc. (RVLV)
RVLV is an online fashion retailer that serves customers in the United States and internationally. The company operates through two segments: REVOLVE and FWRD. It runs a platform that connects consumers, global fashion influencers, and emerging, established, and owned brands.
During the second quarter ended June 30, 2022, RVLV’s revenue increased 26.9% year-over-year to $290.05 million. However, its operating income declined 41.5% from the year-ago value to $19.28 million. The company’s net income decreased 48.4% from the prior-year quarter to $16.27 million. Its EPS declined 47.6% year-over-year to $0.22.
The stock has declined 58.6% over the past year and 7.4% over the past month.
RVLV’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
It also has an F grade for Sentiment and a D for Value and Stability. RVLV is ranked #47 in the same industry. Click here to see the additional POWR Ratings for RVLV. (Momentum, Quality, and Growth).
Vinco Ventures Inc. (BBIG)
BBIG develops and commercializes end-to-end consumer products in North America. It sells kitchenware, small appliances, toys, pet care, baby products, health and beauty aids, entertainment venue merchandise, and housewares to retailers, mass-market retailers, and e-commerce sites, as well as personal protective equipment to government agencies, hospitals, and distributors.
BBIG reports that on August 19, 2022, it received a notice from The Nasdaq Stock Market LLC's Listing Qualifications Department informing that it had missed the deadline for submitting its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, and as a result was in violation of Nasdaq's continued listing requirements under Nasdaq Listing Rule 5250(c)(1).
BBIG’s revenue increased 349.6% year-over-year to $11.53 million for the first quarter ended March 31, 2022. However, its gross profit decreased 34.1% from the year-ago value to $601.16 thousand. Its net loss surged 508.9% from the prior-year quarter to $379.11 million. Its loss per share amounted to $3.05.
The stock has declined 86.7% over the past year and 42.3% year-to-date.
BBIG's weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The stock has an F grade for Stability, Value, and Quality. In the same industry, it is ranked last.
In addition to the POWR Ratings grades I have just highlighted, you can see the BBIG rating for Momentum, Sentiment, and Growth here.
PTON shares were trading at $10.19 per share on Friday afternoon, up $1.09 (+11.98%). Year-to-date, PTON has declined -71.50%, versus a -13.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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