Inflation surged 8.3% year-over-year in August, and another significant rate hike seems inevitable. Analysts at Goldman Sachs now expect a 75-bps hike this week, followed by a 50-bps hike in November.
“How the drag from tighter financial conditions will net out with other key growth impulses in 2023 is more uncertain, and we could imagine the hiking cycle extending beyond this year,” said the analysts, led by economist Jan Hatzius.
Elevated economic uncertainty and rising recession fears have compelled several companies to announce layoffs as a part of their cost-cutting measures. According to a recent survey by PwC, about 52% of the surveyed U.S. companies have enacted hiring freezes to prepare for an economic downturn.
Given this backdrop, we think investors should avoid buying fundamentally weak stocks Shopify Inc. (SHOP), Snap Inc. (SNAP), Robinhood Markets, Inc. (HOOD), and Groupon, Inc. (GRPN) now.
Shopify Inc. (SHOP)
SHOP, a commerce company, offers a cloud-based, multi-channel commerce platform for small and medium-sized businesses. SHOP’s platform enables merchants to display, manage, market, and sell products through various sales channels, including the web, buy buttons, mobile and social media storefronts, pop-up shops, offline retail locations, and more. The company offers both subscription and merchant solutions.
In July, SHOP’s CEO Tobi Lutke admitted that he underestimated the length of the pandemic-driven e-commerce boom and announced cutting 1000 jobs majorly from its sales, accounting, and recruiting departments to lay off 10% of its workforce.
In the second quarter of fiscal 2022, SHOP reported an adjusted operating loss of $41.77 million, compared to an adjusted operating income of $236.80 million during the prior-year quarter. Its adjusted net loss and net loss per share increased 113.5% and 113% year-over-year to $38.45 million and $0.03, respectively.
Street expects SHOP to report a loss of $0.07 per share for the current quarter ending September 2022 and $0.10 for the ongoing fiscal year.
The stock has declined 77.8% over the past year and 57.8% over the past six months to close the last trading session at $32.94.
SHOP’s POWR Ratings reflect this bleak outlook. The stock's overall F rating 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.
SHOP also has an F grade for Sentiment and a D for Growth, Value, Stability, and Quality. It is ranked #29 of 30 stocks in the F-rated Internet – Services industry. To see additional POWR Ratings for SHOP for Momentum, click here.
Snap Inc. (SNAP)
SNAP operates as a camera company in North America, Europe, and internationally. It offers Snapchat, an application that enables people to communicate visually through short videos and images. The company also provides Spectacles, an eyewear product for capturing photos and videos; and advertising products, including AR ads and Snap ads.
For the fiscal second quarter ended June 30, SNAP’s total cost and expenses increased 28.7% from its prior-year quarter to $1.51 billion. Adjusted EBITDA declined 93.9% from the prior-year quarter to $7.19 million. Non-GAAP net loss and net loss per share came in at $29.60 million and $0.02, respectively, indicating an increase of 120.5% and 120% year-over-year.
Analysts expect SNAP’s EPS to decline 89.7% year-over-year to $0.05 for the fiscal year ending December 2022.
The stock has declined 84.8% over the past year and 74.9% over the past nine months to close its last trading session at $11.35.
The stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system. SNAP also has an F grade in Stability and Sentiment and a D in Growth, Momentum, and Quality. Out of the 65 stocks in the F-rated Internet industry, SNAP is ranked #59.
In addition to the POWR Rating grades we’ve stated above, you can see SNAP’s ratings for Value here.
Robinhood Markets, Inc. (HOOD)
HOOD operates a financial services platform in the United States that allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. The company also offers learning and education solutions, which include Snacks, Learn, Newsfeeds, Lists and Alerts, and First Trade Recommendations.
HOOD’s Monthly Active Users (MAU) decreased from 1.9 million sequentially to 14.0 million in the second quarter as customers navigated the volatile market environment.
For the second quarter ended June 30, 2022, HOOD’s net revenues declined 43.7% year-over-year to $318 million. Its total operating expenses increased 21.8% year-over-year to $610 million in the same period. The company also reported a net loss of $295 million and a net loss per share of $0.34.
HOOD’s EPS is expected to remain negative for fiscal 2022 and 2023. Analysts expect its revenue for fiscal 2022 to decline 24.7% year-over-year to $1.37 billion.
The stock has lost 75.8% over the past year to close the last trading session at $10.26.
HOOD’s POWR Ratings reflect its poor prospects. The stock has an overall rating of F, which translates to Strong Sell in our proprietary rating system. It also has an F grade for Quality and a D for Value, Stability, and Sentiment. In the 152-stock F-rated Software - Application industry, HOOD is ranked #141.
Beyond what is stated above, we’ve also rated HOOD for Growth and Momentum. Click here to access all ratings for HOOD.
Groupon, Inc. (GRPN)
GRPN is a marketplace operator that connects merchants to consumers. It offers goods and services on behalf of third-party merchants and serves customers through its website and mobile applications. The company operates through two broad segments: North America and International.
GRPN’s total revenue decreased 42.4% year-over-year to $153.22 million in the fiscal quarter ended June 30, 2022. Net income attributable to GRPN declined 2,597.4% from the prior-year quarter to a negative $91.23 million. Net income per share came in at a negative $3.04, down 2,433.3% from the same period the prior year.
The consensus EPS estimate of $0.04 for the fiscal quarter ending December 2022 indicates a 95.6% year-over-year decrease. Likewise, the consensus revenue estimate of $184.31 million reflects a decline of 17.4% in the same period.
GRPN’s stock slumped 55.4% year-to-date to close the last trading session at $10.32.
It is no surprise that GRPN has an overall rating of D, equating to Sell in our POWR Ratings system. It has a Sentiment and Stability grade of F and a Momentum and Growth grade of D.
In the Internet industry, GRPN is ranked #53. Click here to see the additional POWR Ratings for GRPN (Value and Quality).
SHOP shares were trading at $31.82 per share on Tuesday morning, down $1.12 (-3.40%). Year-to-date, SHOP has declined -76.90%, versus a -18.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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