With all three benchmark indexes hovering near record highs, the investment environment is certainly favorable for investors. However, not all stocks that contributed to the market’s momentum are good bets now.
The exceptional rally of some stocks has been driven by their popularity with social-media-influenced retail traders, in some cases despite their companies’ weak financials and bleak growth prospects.
Chinese EV-maker NIO Inc. (NIO) and American movie theater chain AMC Entertainment Holding, Inc. (AMC) have witnessed a skyrocketing rally based solely on their popularity and social media hype. But, since their current price levels are not in sync with their fundamentals, they could witness a price retreat in the near term. Therefore, we think these two stocks are best avoided now.
NIO Inc. (NIO)
China-based NIO is engaged in manufacturing and selling smart and connected electric vehicles. It develops self-driving electric vehicles that are equipped with innovative technology and artificial intelligence. It also provides its users with a variety of value-added services, including automotive damage insurance through third-party insurers, repair and routine maintenance services, and roadside assistance.
NIO’s operating expenses increased 32% to ¥1.85 billion ($282.48 million) in its fiscal first quarter, ended March 31, 2021. The company also reported a ¥295.92 million ($45.17 million) operating loss . Also, the company’s net loss came in at ¥4.87 billion ($744.07 million), representing a 183% increase year-over-year, while its loss per share was ¥3.14 ($0.48) for this quarter.
Analysts expect NIO’s EPS to decline at a 0.2% rate over the next five years. The stock has soared 209.4% over the past year but declined 4.9% year-to-date.
NIO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
The stock is also rated an F grade for Stability, and a D for Value and Sentiment. Within the C-rated Auto & Vehicle Manufacturers industry, it is ranked #47 of 57 stocks.
To see the additional POWR Ratings for Growth, Quality, and Momentum for NIO, click here.
Click here to checkout our Electric Vehicle Industry Report for 2021
AMC Entertainment Holdings, Inc. (AMC)
AMC is a Leawood, Kans.,-based movie theater chain that operates through two segments: domestic and international markets. On a film-by-film and theater-by-theater basis, it licenses first-run films from distributors controlled by film production corporations and independent distributors. It operates 1,004 theaters and 11,041 screens across 15 countries.
Last month, AMC agreed with Mudrick Capital Management, L.P. to raise $230.5 million from the sale of 8.5 million shares of its common stock. AMC plans to use the proceeds from the stock sale to acquire additional theater leases and pursue deleveraging opportunities. However, selling shares could dilute shareholder value.
AMC’s total non-GAAP revenue declined 84.3% year-over-year to $147.4 million, while its operating loss came in at $427.8 million in the first quarter, ended March 31, 2021. The company reported a $566.9 million net loss, and its loss per share came in at $1.42 over this period.
The stock failed to beat consensus EPS estimates in all of the trailing four quarters. Analysts expect AMC’s EPS to decline 217% over the next five years. Although AMC has gained 826.3% over the past year, it has declined 13.7% over the past month.
AMC’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.
The stock has an F grade for Value, Sentiment, and Stability. AMC is ranked #6 of 8 stocks in the F-rated Entertainment- Movies/Studios industry.
Click here to see the additional POWR Ratings for AMC. (Quality, Momentum, and Growth).
NIO shares were trading at $45.73 per share on Tuesday afternoon, down $0.61 (-1.32%). Year-to-date, NIO has declined -6.18%, versus a 17.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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