Markets have soared recently, driven by China’s reopening, falling energy prices, and slowing inflation. This has spurred hope among investors of a soft landing, plummeting inflation, and interest rate cuts this year.
However, as the central bank is persistently trying to push inflation down to its target level, interest rates could stay high for a while. Moreover, the weak U.S. retail sales and industrial production revived concerns about recession. Retail sales plummeted 1.1% last month, posting the biggest drop in 12 months, while industrial production fell 0.7% in December, sparking talk of a ‘factory recession.’
Jeffrey Roach, the chief economist at LPL Financial in Charlotte, said, "The trajectory for the economy is weakening and recession risks are rising for 2023."
The widespread signs of weakening demand and subsiding inflation will likely encourage the Federal Reserve to scale back the pace of its rate increase in February but not pause its monetary policy tightening anytime soon as the labor market remains tight.
Given this backdrop, investors expecting Fed rate cuts later in the year are likely to be disheartened, as the market looks vulnerable to policy overtightening and increasing odds of a recession.
To that end, it could be wise to avoid fundamentally weak stocks Virgin Galactic Holdings, Inc. (SPCE), Marathon Digital Holdings, Inc. (MARA), and Loop Industries, Inc. (LOOP) this week.
Virgin Galactic Holdings, Inc. (SPCE)
SPCE is an integrated aerospace company that develops human spaceflight for private individuals and researchers in the United States. It also manufactures air and space vehicles. In addition, it designs, develops, manufactures spacecraft, and engages in ground and flight testing and post-flight maintenance of spaceflight vehicles.
In terms of forward EV/Sales, SPCE is trading at 483.16x, significantly higher than the industry average of 1.77x. Also, its forward Price/Sales multiple of 828.77 compares to the industry average of 1.35.
SPCE's revenue decreased 70.3% year-over-year to $767 thousand in the third quarter that ended September 30, 2022. Its operating loss and net loss widened by 75.2% and 200.9% from the year-ago values to $145.56 million and $145.55 million, respectively.
The company’s net loss per share amounted to $0.55, widening 71.9% from the same quarter the prior year. Also, its adjusted EBITDA loss increased 89.8% year-over-year to $128.52 million for the same period.
Street expects SPCE's revenue to decline 47.8% year-over-year to $1.72 million in the fiscal year 2022 (ended December 31, 2022). Its EPS is expected to remain negative for the fiscal years 2022 and 2023. It failed to surpass the EPS estimates in three of the trailing four quarters.
Shares of SPCE have declined 37.3% over the past year to close the last trading session at $5.31.
SPCE's POWR Ratings reflect its poor prospects. The company has an overall rating of F, 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 has an F grade for Value, Stability, and Sentiment and a D for Growth and Quality. Out of 31 stocks in the Airlines industry, it is ranked last. Click here to see SPCE’s rating for Momentum.
Marathon Digital Holdings, Inc. (MARA)
MARA is a digital asset company that focuses on the blockchain ecosystem and the generation of digital assets. The company holds bitcoins in an investment fund.
MARA’s revenues for the fiscal third quarter (ended September 30, 2022) decreased 75.5% year-over-year to $12.69 million. Its operating loss widened 107.9% from the year-ago value to $46.65 million, while its net loss came in at $75.42 million, widening 240.2% from the year-ago period.
The company’s adjusted EBITDA loss amounted to $8.70 million versus an adjusted EBITDA of $78.78 million in the previous year’s period. Also, its loss per share widened 195.5% year-over-year to $0.65.
The stock’s forward EV/Sales and EV/ EBITDA multiples of 13.16 and 7.43 are 361.2% and 154.7% higher than the industry averages of 2.85 and 2.92, respectively. Also, its forward Price/Cash Flow multiple of 50.44 compares to the industry average of 18.57.
Analysts expect MARA’s EPS to be negative for the fiscal year 2022. Its revenue for the quarter that ended December 31, 2022, is expected to decline 43.1% year-over-year to $34.33 million. It failed to surpass the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has lost 59.2% to close the last trading day at $9.
MARA’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 Value, Stability, Sentiment, and Quality and a D for Growth and Momentum. Get all MARA ratings here.
Loop Industries, Inc. (LOOP)
Headquartered in Terrebonne, Canada, LOOP, a technology company, focuses on depolymerizing waste polyethylene terephthalate (PET) plastics and polyester fibers into base building blocks.
On December 22, 2022, LOOP entered into an agreement to sell the Bécancour site for CDN $ 18.5 million ($13.8 million). The company also announced that it had significantly curtailed operations at its Terrebonne, Quebec production facility as a part of its cost reduction measures to ensure ongoing liquidity.
In terms of forward EV/Sales, LOOP is trading at 102.73x, significantly higher than the industry average of 1.55x. Also, its forward Price/Sales multiple of 121.05 compares to the industry average of 1.17.
For the quarter that ended November 30, 2022, LOOP’s net loss came in at $1.01 million, while its loss per share came in at $0.02. As of November 30, the company’s total assets stood at $39.64 million, compared to $59.22 million as of February 28, 2022.
Analysts expect LOOP's loss per share for the fiscal years 2022 and 2023 to remain negative. The stock has declined 70.6% over the past year to close the last trading session at $2.55.
LOOP's POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. It also has a D grade for Value and Sentiment. Among 89 stocks in the Chemicals industry, it is ranked #79.
Click here to see the additional ratings of LOOP (Growth, Momentum, Stability, and Quality).
SPCE shares were trading at $5.38 per share on Tuesday afternoon, up $0.07 (+1.32%). Year-to-date, SPCE has gained 54.60%, versus a 4.66% 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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