Stock market volatility was a constant throughout 2022 and continues to be an obvious feature of capital market dynamics so far this year. Moreover, the likelihood of a U.S. recession is back on the rise for the first time since November 2022. Investors are now expecting a slower pace of tightening from the Federal Reserve in light of the banking crisis.
Amid this, fundamentally weak stocks Lucid Group, Inc. (LCID), Robinhood Markets, Inc. (HOOD), and SNDL Inc. (SNDL) have struggled to maintain their profits. So, let’s delve into why these stocks might be avoided.
The recent failures in the banking sector have fueled worries of contagion in the financial sector. This, in turn, has heightened global anxieties over the growing possibility of recession among investors. According to the latest BofA fund manager survey, about 42% of participants expect a slowdown over the next 12 months, up from 24% in February.
However, all three major U.S. stock indexes ended in green on Tuesday, as widespread fears over liquidity in the banking sector abated and market participants eyed the Federal Reserve, which in all likelihood, is expected to implement another rate hike in their ongoing battle against inflation.
Traders are now pricing in an 87.8% probability of the central bank raising interest rates by a quarter of a percentage point and a 12.2% probability of leaving its policy rate unchanged, according to CME's FedWatch tool.
On the bright side, a smaller or no rate hike could stroke hopes of the next bull market on the horizon. Hence, it could be wise to steer clear of fundamentally weak stocks LCID, HOOD, and SNDL before they worsen in the near term.
Lucid Group, Inc. (LCID)
LCID uses its equipment and factory to design, develop, manufacture, and sell Electric Vehicles (EVs), EV powertrains, and battery systems in-house.
In order to compete in a challenging EV market, on February 9, the company announced its own $7,500 EV credit on the purchase of select Lucid Air Models. However, this is not backed by government funding.
On a full-year basis, LCD only produced 7,180 vehicles last year. Out of which, the company reportedly delivered 4,369 EVs in 2022, which is approximately 60.8% of what it produced.
In terms of forward EV/Sales, LCID is trading at 9.32x, 741.5% higher than the industry average of 1.11x. Likewise, its forward Price/Sales multiple of 10.48 is significantly higher than the industry average of 0.85x. Its forward Price/Book ratio of 6.26 compared with the industry average of 2.46.
For the fiscal fourth quarter that ended December 31, 2022, LCID’s loss from operations widened 54.4% year-over-year to $749.74 million. Its total costs and expenses increased 96.7% year-over-year to $1.01 billion.
The company’s attributable net loss and net loss per share amounted to $472.65 million and $0.28, respectively, during the same period. Also, its adjusted EBITDA loss came in at $623.61 million, up 108.2% from the year-ago value.
In addition, the stock’s trailing-12-month gross profit margin and net income margin of negative 170.66% and 214.49% compares to the industry averages of 34.99% and 4.56%, respectively.
Analysts expect the company’s EPS to remain negative in the fiscal year 2023 and is expected to decline by 32.9% per annum over the next five years. Moreover, it missed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has slumped 67.7% to close the last trading session at $8.19.
LCID’s weak fundamentals are reflected in its POWR Ratings. It 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, each weighted to an optimal degree.
It has an F grade for Value, Stability, and Quality and a D for Growth and Sentiment. Within the Auto & Vehicle Manufacturers industry, it is ranked last of 58 stocks. Click here to see LCID’s ratings for Momentum.
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 4.34x, 102.1% higher than the industry average of 2.15x. Likewise, its forward Price/Cash Flow multiple of 14.19 is 61.9% higher than the industry average of 8.77.
Also, the stock’s trailing-12-month net income margin, ROCE, and ROTA of negative 75.70%, 14.43%, and 4.41% compares to the industry averages of 26.69%, 11.19%, and 1.15%, respectively.
For the fourth quarter of the fiscal year 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 years 2023 and 2024. It has a grim earnings surprise history, missing the consensus revenue estimates in each of the trailing four quarters. HOOD’s shares have lost 28.4% over the past year to close the last trading day at $9.34.
HOOD’s bleak outlook is reflected in its overall D rating, equating to Sell in our POWR Ratings system. It has a D grade for Value, Stability, Sentiment, and Quality. HOOD is ranked #121 of 134 stocks in the D-rated Software - Application industry.
Click here to access additional ratings for HOOD’s Growth and Momentum.
SNDL Inc. (SNDL)
SNDL engages in the production, distribution, and sale of cannabis products in Canada. The company operates through Cannabis Operations and Retail Operations segments. It provides its products under the Top Leaf, Palmetto, Sundial Cannabis, and Grasslands brands. It is headquartered in Calgary, Canada.
On February 13, due to the industry-wide overproduction, the company announced the reduction of about 85 employees and scaled back activity at a production facility in Olds, Alberta. CEO of SNDL, Zach George, said, “Oversupply and excess capacity have resulted in high-quality flower being widely available and sold well below the marginal cost of production.”
SNDL’s trailing-12-month gross profit margin of 19.07% is 65.7% lower than the industry average of 55.67%. Likewise, the stock’s trailing-12-month EBITDA margin of negative 7.74% compares to the industry average of 3.39%.
During the third quarter that ended on September 30, 2022, SNDL’s loss from operations widened 365% year-over-year to CAD88.54 million ($65.66 million). Its net loss came in at CAD98.84 million ($72.18 million) compared to a net income of CAD16.71 million ($12.20 million) for the same quarter in 2021. Also, its loss per share amounted to CAD0.41, compared to an EPS of CAD0.08 in the prior-year quarter.
The company’s loss per share is expected to widen by 19% from the previous year to $0.65 for the fiscal year that ended December 2022. It is expected to report a loss per share of $0.06 for the fiscal year 2023. The stock has plunged 55.3% over the past nine months and 70.3% over the past year to close its last trading session at $1.58.
SNDL’s POWR Ratings reflect this weak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. It also has an F grade for Momentum and Stability and a D for Sentiment and Quality. Out of 166 stocks in the D-rated Medical - Pharmaceuticals is ranked #138.
In addition to the POWR Ratings just highlighted, you can see the SNDL’s rating for Growth and Value here.
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LCID shares were trading at $8.28 per share on Wednesday morning, up $0.10 (+1.16%). Year-to-date, LCID has gained 21.23%, versus a 4.70% 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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