While the inflation rate for December moderated in line with consensus estimates, a buoyed market is witnessing a rally even among meme stocks which found the wind taken out of its sails amid aggressive interest rate hikes by the Fed during the previous year.
However, with the CPI of 6.5% for December remarkably higher than the 2% levels being targeted by the Federal Reserve, the central bank is unlikely to be complacent with the status quo in the foreseeable future.
Despite being administered in small doses, the inoculation of increasing borrowing costs is set to become more effective. Therefore, fundamentally weak meme stocks, pumped up by unprecedented hype created by retail investors on social media forums, are likely to face their day of reckoning, leaving behind investment-worthy businesses to prosper instead.
Given the macroeconomic and market conditions, it could be wise for existing investors to make Greater Fool Theory work for them and offload fundamentally weak meme stocks Coinbase Global, Inc. (COIN), AMC Entertainment Holdings Inc. (AMC), Opendoor Technologies Inc. (OPEN), and Bed Bath & Beyond Inc. (BBBY) while the music lasts.
Coinbase Global, Inc. (COIN)
COIN is a fintech company that provides end-to-end financial infrastructure and technology for the global crypto economy. The company offers financial accounts for retail crypto users, a liquid marketplace to institutions for crypto transactions, and technology and services for ecosystem partners.
On January 10, COIN announced that it would eliminate 20% of its staff, amounting to an approximate headcount of 950 people, and enact broad cost cuts as part of its ongoing efforts to tighten its belt amid a crypto winter. This followed the company’s November 11 announcement when it was revealed that COIN has laid off just over 60 people.
These announcements were part of a broader cost-cutting plan announced in June, under which the company had decided to lay off 1,100 employees or 18% of its workforce at the time of the announcement.
Earlier today, S&P Global Ratings downgraded COIN’s long-term credit ranking, yet again, deeper into junk territory, cutting it by one notch to 'BB-' from `BB' with a negative outlook. According to the rating agency, the crypto exchange faces a hit to its profits amid a confidence crisis in the industry following the FTX implosion.
On January 10, Nikhil Wahi, brother of Ishan Wahi, a project manager at COIN, was sentenced to 10 years in prison after pleading guilty to wire fraud conspiracy by using confidential information from COIN and amassing ill-gotten gains.
On November 1, COIN filed a federal court for permission to file a friend-of-the-court (amicus) brief in the ongoing lawsuit between the U.S. Securities and Exchange Commission (SEC) and Ripple Labs. SEC sued Ripple at the end of 2020 on allegations that it sold XRP as an unregistered security.
COIN has argued that the SEC’s inconsistent enforcement approach creates “uncertainty” for companies in the sector.
The above developments illustrate a longstanding concern of financial regulators regarding the risks posed to institutions by external partnerships and justify the call for greater regulation which hurts the USP of decentralized finance and businesses built around it, such as COIN.
For the fiscal 2022 third quarter ended September 30, COIN’s total revenue decreased 55% year-over-year to $590.34 million due to a significant negative impact by stronger macroeconomic and crypto market headwinds and trading volume moving offshore. The company reported an operating loss of $556.48 million, compared to an income of $291.81 million in the prior-year period.
In addition, its adjusted EBITDA came in at negative $115.89 million, compared to $618.22 in the prior year’s period. COIN’s net loss attributable to common shareholders came in at $544.64 million and $2.43 per share, compared to a net income of $405.30 million and $1.62 per share in the year-ago period, respectively.
Analysts expect COIN’s revenue for the fiscal year ending December 2022 to decline 59.7% year-over-year to $3.16 billion. Also, the company’s loss per share for the current year is expected to come in at $6.18, compared to an EPS of $17.10 in the previous year.
The stock has plunged 18.7% over the past six months and 81.5% over the past year to close the last trading session at $43.79. It is trading at 3.15 times its forward sales, 13% higher than the industry average of 2.78. Also, its forward Price/Book of 1.85x is 46.7% higher than the 1.26x industry average.
It is no surprise that COIN has an overall rating of F, which translates to a Strong Sell, in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
COIN also has an F grade for Growth, Stability, and Sentiment and a D for Value, Momentum, and Quality.
The stock is ranked last among 139 stocks in the F-rated Software – Application industry.
AMC Entertainment Holdings Inc. (AMC)
As a theatrical exhibition company, AMC owns, operates, and has interests in theaters in the United States and worldwide. The Company operates through two segments: U.S. markets and International markets.
On December 22, 2022, AMC announced a $110 million equity capital raise through the sale of AMC Preferred Units (APE) to Antara Capital, LP, at a weighted average price of $0.660 per share. The company also sought a special shareholder meeting to vote on its proposal to convert APE units into AMC common shares and reverse-split the number of AMC common shares at a 1:10 ratio.
The above announcement closely followed AMC’s December 19 announcement that it had raised $162 million of equity capital through sales of 125.9 million AMC Preferred Equity Units.
On December 14, AMC announced that it has partnered with Visa (V) and deserve to launch the AMC Entertainment Visa Card. It is expected to be available in early 2023.
These developments come at a time when the Federal Reserve is aiming to control inflation by restricting liquidity and consequently slowing discretionary expenditure. Moreover, given the evolving situation of a potential resurgence and spread of Covid, benefits of such additional investments are not expected to accrue to shareholders.
On October 20, AMC’s Subsidiary Odeon Finco PLC announced that it had completed its private offering of $400.0 million aggregate principal amount of 12.750% senior secured notes due 2027 at an issue price of 92.00%. Exposure to expensive debt in a rising interest rate environment may hinder the company’s bottom-line growth.
For the third quarter of the fiscal year 2022 ended September 30, AMC’s adjusted EBITDA loss widened 138.9% year-over-year to $12.9 million, while its net loss widened 1.2% year-over-year to $226.9 million. This resulted in an adjusted quarterly loss of $0.20 per share.
Analysts expect AMC’s loss per share for the fourth quarter of the current fiscal year (ended December 2022) to widen 63.6% year-over-year to $0.18. Additionally, the company is expected to keep reporting losses over the next two fiscals.
The stock has plummeted 15.6% over the past month and 45.4% over the past six months to close the last trading session at $4.92. Its forward EV/EBITDA and EV/Sales multiples of 2.94 and 93.38 exceed the industry averages of 1.87 and 8.44, respectively.
Due to its weak performance, AMC has an overall rating of D, which translates to a Sell, in our POWR Ratings system. It has an F grade for Stability and Sentiment.
AMC is ranked last among six stocks in the F-rated Entertainment– Movies/Studios industry.
Click here to see additional POWR Ratings for Growth, Value, Quality, and Momentum for AMC.
Opendoor Technologies Inc. (OPEN)
OPEN operates a digital platform for residential real estate in the United States. The platform allows consumers to buy and sell a home online by acquiring homes directly from individual sellers and reselling those homes to buyers.
For the third quarter that ended September 30, 2022, OPEN reported a gross loss of $425 million, compared to a gross profit of $202 million in the previous-year quarter. During the same period, the company’s adjusted EBITDA came in at negative $211 million, compared to $35 million during the year-ago period. As a result, the adjusted net loss widened by more than a factor of 18 to come in at $328 million.
OPEN’s total liabilities came in at $8.30 billion as of September 30, 2022, compared to $7.26 billion as of December 31, 2021.
Street expects OPEN’s revenue to decrease 35.6% year-over-year to $2.46 billion for the fiscal fourth quarter that ended December 2022. During the same period, the company’s loss per share is expected to widen by 177.4% year-over-year to $0.86. Moreover, OPEN has an unenviable track record of missing consensus estimates in three of the trailing four quarters.
The stock has lost 72.3% and 88.1% of its value over the past six months and the past year, respectively, to close the last trading session at $1.42.
Unsurprisingly, OPEN has an overall rating of F, equating to a Strong Sell, in our POWR Ratings system. It also has an F grade for Growth, Stability, and Sentiment and a D for Momentum and Quality.
OPEN is ranked #40 of 42 stocks in the F-rated Real Estate Services industry.
In addition to the above, all OPEN ratings are available here.
Bed Bath & Beyond Inc. (BBBY)
BBBY operates as an omnichannel retailer. It sells a range of domestic merchandise, like bed linens, bath items, kitchen textiles, home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and various juvenile products.
With BBBY approaching potential bankruptcy, news surfaced, on January 10, that the company would lay off more employees in an attempt to reduce costs and stay in business.
For the third quarter of fiscal 2022, which ended November 26, 2022, BBBY’s net sales declined 33% year-over-year to $1.26 billion. This decline was mainly due to a 32% decline in comparable sales, driven by a lower in-stock position of approximately 70% and a decrease in customer traffic. The company’s gross profit decreased 58.3% year-over-year to $278.86 million during the same period.
BBBY’s adjusted EBITDA for the quarter came in at negative $224.99 million, compared to $40.64 million in the prior-year period. As a result, the company’s adjusted net loss for the quarter worsened significantly to $331.23 million or $3.65 per share.
Street expects BBBY’s revenue to decrease 29.8% year-over-year to $5.53 billion for the fiscal year (ending February 2023). The company’s loss per share for the same period is expected to worsen by 1026.8% year-over-year to $12.17. Moreover, the company has failed to surpass its consensus revenue estimates in each of the trailing four quarters.
Shares of BBBY have slumped 27.3% over the past six months and 73.4% over the past year to close the last trading session at $3.49.
BBBY’s bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
BBBY also has an F grade for Stability and Sentiment and a D for Momentum and Quality. The stock is ranked #56 of 59 in the Home Improvement & Goods industry.
Click here to see the additional POWR Ratings for BBBY’s Growth and Value.
COIN shares were trading at $46.55 per share on Thursday afternoon, up $2.76 (+6.30%). Year-to-date, COIN has gained 31.53%, versus a 3.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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