The communication services sector is not likely to be completely insulated from the challenges of sky-high inflation, geopolitical turmoil, rising interest rates, and ballooning recessionary fears.
Against this backdrop, let us explore some communication services stocks, such as Inseego Corp. (INSG) and Airspan Networks Holdings Inc. (MIMO), which could be best avoided now to safeguard your portfolio amid a volatile market scenario.
The communication services sector comprises telecommunication services (diversified and wireless) and media, entertainment, and interactive media and services. The sector is ever-evolving and is considered robust with resilient fundamentals. However, the sector witnessed a sell-off alongside the broader market last year.
The toxic blend of rising interest rates, increasing prices, bank crisis, and soaring fears of an impending economic downturn has raised market volatility. Such headwinds could keep the communication services sector under some pressure this year as well.
The capital-intensive telecommunications sector is expected to face capital challenges and margin pressure this year, as high operating costs and rising borrowing costs make companies vulnerable to customer-switching to lower-margin products.
According to the Dell’Oro Group, global telecom capex is projected to decline at a 2% to 3% CAGR over the next three years due to sharp cuts in North America.
Furthermore, several barriers to technological transformations, such as complex security and privacy requirements, high cost of technology infrastructure, and complex data, could keep the sector under pressure.
Amid such headwinds, fundamentally weak communication services stocks INSG and MIMO could be avoided now. Additionally, these stocks are rated D (Sell) in our proprietary POWR Ratings system.
Inseego Corp. (INSG)
INSG engages in the design and development of fixed and mobile wireless solutions, industrial Internet of Things (IIoT), and cloud solutions for large enterprise verticals, service providers, small and medium-sized businesses, governments, and consumers worldwide.
INSG’s trailing-12-month EBITDA margin of negative 18.59% compares to the 8.83% industry average. Likewise, its trailing-12-month ROTC and ROTA of negative 27.99% and 42.74% compare to the industry averages of 1.87% and 0.64%, respectively.
INSG’s total net revenues decreased 27.4% year-over-year to $52.92 million for the fiscal fourth quarter that ended December 31, 2022. The company’s gross profit declined 12.9% from its year-ago value to $15.81 million.
Its operating loss increased 44.5% from the prior-year quarter to $14.21 million. Also, the company’s non-GAAP net loss and net loss per share came in at $11.77 million and $0.11, respectively.
For the fiscal second quarter ending June 2023, its EPS is estimated to come in at negative $0.06. For the same quarter, its revenue is expected to decline 16.6% year-over-year to $51.56 million. Moreover, INSG failed to surpass consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has declined 78.8% over the past year and 66.8% over the past six months to close its last trading session at $0.64.
INSG’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a D grade for Stability, Sentiment, and Quality. INSG is ranked #48 out of the 68 stocks in the Technology – Communication/Networking industry.
Click here to access the additional INSG ratings (Growth, Value, and Momentum).
Airspan Networks Holdings Inc. (MIMO)
MIMO designs and produces wireless network equipment for 4G and 5G networks for mainstream public telecommunications service providers and private network implementations. It offers a range of 4G and 5G network build and network densification products with a portfolio of software and hardware tools.
MIMO’s trailing-12-month gross profit margin of 39.72% is 21.5% lower than the industry average of 50.63%. Its trailing-12-month ROTC and ROTA of negative 44.57% and 68.25% compare to the industry averages of 1.87% and 0.65%, respectively.
During the fiscal fourth quarter that ended December 31, 2022, MIMO’s total revenues decreased 17.3% year-over-year to $41.66 million, while its gross profit fell 7.2% from the prior-year period to $19.21 million. For the same quarter, its loss from operations came in at $7.75 million, and adjusted EBITDA came in at a negative $4.96 million.
The company’s net loss and loss per share came in at $11.31 million and $0.15, respectively. MIMO’s total current liabilities stood at $198.67 million as of December 31, 2022, compared to $73.62 million as of December 31, 2021.
MIMO’s revenue and EPS are expected to come in at $54.50 million and negative $0.06 for its fiscal second quarter ending June 2023. Moreover, MIMO failed to surpass consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has plunged 64.3% over the past three months to close the last trading session at $0.50. Moreover, it lost 3.9% intraday.
MIMO’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, translating to Sell in our proprietary rating system.
MIMO has a D grade for Growth and Quality. Within the same industry, it is ranked #51.
To see additional POWR Ratings for MIMO (Value, Momentum, Sentiment, and Stability), click here.
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INSG shares were trading at $0.63 per share on Tuesday morning, down $0.01 (-2.28%). Year-to-date, INSG has declined -25.22%, versus a 7.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
These 2 Sell-Rated Communication Services Stocks Are in Trouble StockNews.com
