A year on, the Fed is still increasing interest rates in its battle to bring inflation down. Minutes from the Fed’s policy meeting show that the Fed officials are keen on raising interest rates. This could keep the stock market under pressure this year. In this scenario, let’s see why it could be wise to avoid Shopify Inc. (SHOP), Snap Inc. (SNAP), SoFi Technologies, Inc. (SOFI), and Digital World Acquisition Corp. (DWAC).
A key inflation figure that the Fed closely tracks is the Personal Consumption Expenditure (PCE). It rose 0.6% sequentially and 5.4% year-over-year, indicating that inflation was still at elevated levels and the Fed has its work cut out. In addition, the jobs report surprised Wall Street as unemployment fell to 3.4%, and nonfarm payrolls increased by 517,000, coming way above estimates of 187,000.
With inflation still well above the Fed’s long-term 2% target, the central bank is unlikely to stop the rate hikes anytime soon. Many analysts expect the federal funds rate to surpass 5%. This is expected to keep the market under pressure this year.
Furthermore, researchers doubt the ability of the Fed to engineer a soft landing in which inflation returns to the target by the end of 2025 without a mild recession.
Given these factors, it could be wise for investors to avoid fundamentally weak stocks SHOP, SNAP, SOFI, and DWAC.
Shopify Inc. (SHOP)
Headquartered in Ottawa, Canada, SHOP provides a commerce platform and services worldwide. The company's platform enables merchants to display, manage, market, and sell its products through their various sales channels and enables them to manage products and inventory, process orders and payments, and fulfill and ship orders.
In terms of the trailing-12-month Capex/Sales, SHOP’s 0.89% is 63.1% lower than the 2.42% industry average. Likewise, its 0.46x trailing-12-month asset turnover ratio is 23.7% lower than the industry average of 0.61x.
SHOP’s adjusted net income for the fourth quarter that ended December 31, 2022, declined 47.4% year-over-year to $91 million. The company’s adjusted operating income declined 53.1% year-over-year to $60.99 million. Its adjusted net EPS attributable to shareholders came in at $0.07, representing a 50% decline from the prior-year quarter.
Analysts expect SHOP’s EPS for the quarter that ended December 31, 2022, to be negative. Over the past month, the stock has fallen 20.2% to close the last trading session at $40.10.
SHOP’s bleak outlook is reflected in its POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the F-rated Internet - Services industry, it is ranked #26 out of 29 stocks. It has a D grade for Value and Stability.
To see the additional ratings of SHOP for Growth, Momentum, Sentiment, and Quality, click here.
Snap Inc. (SNAP)
SNAP operates as an international camera company. It offers Snapchat, the popular camera application that enables people to communicate visually through short videos and images. It provides Spectacles, an eyewear product that connects with Snapchat, and offers advertising products.
In terms of the trailing-12-month Capex/Sales, SNAP’s 2.81% is 31.7% lower than the 4.11% industry average. Its trailing-12-month net income margin is negative 31.07% compared to the 3.41% industry average.
For the fiscal year that ended December 31, 2022, SNAP’s operating loss widened 98.7% year-over-year to $1.40 billion. Its net loss widened 192.9% year-over-year to $1.43 billion, while its non-GAAP EPS declined 65% from the prior-year quarter to $0.17. In addition, its adjusted EBITDA declined 39% year-over-year to $377.57 million.
SNAP’s EPS for the quarter ending March 31, 2023, is expected to remain negative. Its revenue for the same quarter is expected to decline 5.1% year-over-year to $1.01 billion. Over the past nine months, the stock has declined 27.2% to close the last trading session at $10.14.
SNAP’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system.
Within the D-rated Internet industry, it is ranked #52 out of 59 stocks. The company has a D grade for Growth, Momentum, Stability, and Sentiment.
Click here to see SNAP’s ratings for Value and Quality.
SoFi Technologies, Inc. (SOFI)
SOFI provides digital financial services and products that allow its members to borrow, save, spend, invest, and protect their money. It operates through three segments: Lending; Technology Platform; and Financial Services. In addition, it operates Galileo, Apex, and Technisys platforms.
In terms of the trailing-12-month asset turnover ratio, SOFI’s 0.11x is 42.3% lower than the 0.19x industry average. Its trailing-12-month net income margin is negative 21.09% compared to the 27.37% industry average.
For the fiscal fourth quarter that ended December 31, 2022, SOFI’s net loss narrowed 64% year-over-year to $40.01 million. Its net cash used in operating activities for the fiscal year increased 437.3% year-over-year to $7.26 billion. Additionally, its loss per share narrowed 66.7% year-over-year to $0.05.
SOFI’s EPS for the quarter ending March 31, 2023, is expected to remain negative. The stock has fallen 12.7% over the past month to close the last trading session at $6.44.
SOFI’s POWR Ratings are consistent with its weak fundamentals. It has an overall rating of D, which translates to a Sell in our proprietary rating system. It is ranked #97 out of 105 stocks in the F-rated Financial Services (Enterprise) industry. It has an F grade for Stability and Quality and a D for Value.
To see the additional ratings of SOFI for Growth, Momentum, and Sentiment, click here.
Digital World Acquisition Corp. (DWAC)
DWAC does not carry out significant operations. The company focus includes effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or related business combination with one or more businesses.
Its trailing-12-month Return on Total Assets is negative 3.77%.
DWAC’s net loss for the quarter that ended September 30, 2022, widened significantly year-over-year to $3.79 million. Its net loss per Class A common stock widened considerably year-over-year to $0.10.
The stock has fallen 65.7% over the past nine months to close the last trading session at $14.76.
DWAC's POWR Ratings reflect this grim outlook. It has an overall rating of F, translating to a Strong Sell in our proprietary rating system. It is ranked #103 in the Financial Services (Enterprise) industry. In addition, it has an F grade for Growth and a D for Value, Stability, Sentiment, and Quality.
To see DWAC’s rating for Momentum, click here.
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SHOP shares were trading at $40.61 per share on Thursday afternoon, up $0.51 (+1.27%). Year-to-date, SHOP has gained 17.00%, versus a 3.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
4 Popular Stocks You Need to Sell or Avoid Completely in 2023 StockNews.com
