Inflation rose in February, in line with expectations, indicating that the Federal Reserve will likely proceed with another interest rate hike next week, despite the current turmoil in the banking industry.
So, I think fundamentally weak stocks Snap Inc. (SNAP), Peloton Interactive Inc. (PTON), and Tilray Brands, Inc. (TLRY) might be best avoided now the losses might worsen in the near term.
According to the Labor Department, the consumer price index increased by 0.4% in February, with an annual inflation rate of 6%, precisely in line with Dow Jones estimates. Following the release of the CPI report, the likelihood of the rate hike increased, with traders pricing in an 85% chance of a quarter-point increase, according to a CME Group estimate.
Additionally, despite the recent failures of Silicon Valley Bank and Signature Bank, which led regulators to intervene, markets still expect the Federal Reserve to continue its efforts to fight inflation and raise interest rates.
Moreover, Goldman Sachs has revised its 2023 economic growth forecast downwards by 0.3 percentage points to 1.2% due to a decrease in lending from small and medium-sized banks amidst the ongoing financial turmoil.
Goldman economists David Mericle and Manuel Abecasis suggest that tighter lending standards could negatively affect the US economy's aggregate demand and further slow down the GDP growth already affected by tightening in recent quarters.
Take a look at the stocks mentioned above:
Snap Inc. (SNAP)
SNAP is a technology company offering a visual messaging application Snapchat that enables people to communicate visually through short videos and images. The company also provides an eyewear product, Spectacles, that connects with Snapchat and captures photos and video from a human perspective. In addition, it offers advertising products, including Snap ads and augmented reality (AR) ads.
In terms of its forward non-GAAP P/E, SNAP is currently trading at 46.63x, which is 199.2% higher than the industry average of 15.58x. Its forward Price/Book multiple of 6.11 is 254.6% higher than the industry average of 1.72. The stock’s forward EV/Sales of 3.53x are 90.1% higher than the industry average of 1.86x.
During the fourth quarter that ended December 31, 2022, SNAP’s operating loss grew by 1,044.6% year-over-year to $287.60 million. Its adjusted EBITDA declined 28.6% year-over-year to $233.28 million.
Its net loss came in at $288.46 million, compared to a net income of $22.55 million in the prior-year quarter. Also, its non-GAAP net income per share declined 36.4% year-over-year to $0.14.
SNAP’s revenue is expected to decrease 5.1% year-over-year to $1.01 billion in the current quarter ending March 2023. Its revenue is expected to amount to negative $0.01 for the same quarter. Also, the company has missed the consensus revenue estimates in each of the trailing four quarters, which is disappointing.
SNAP has declined 65% over the past year to close the last trading session at $10.34. The stock fell 8.2% over the past month. Its 24-month beta is 1.73.
SNAP’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Sentiment and a D for Growth, Quality, and Stability. It is ranked #56 out of 60 stocks in the D-rated Internet industry.
To access additional SNAP ratings for Value, Momentum, and Quality, click here.
Peloton Interactive Inc. (PTON)
PTON provides an interactive fitness platform and sells interactive fitness products internationally. The company operates through two segments: Connected Fitness Products and Subscriptions. Its product portfolio includes Peloton Bike, Peloton Bike+, Tread and Tread+, heart rate monitor, and dumbbells.
PTON’s forward Price/Sales multiple of 1.34 is 55.1% higher than the industry average of 0.86. The stock’s forward EV/Sales of 2.00x is 75.6% higher than the industry average of 1.14x. Its trailing-12-month Price/Book multiple of 123.25 is significantly higher than the industry average of 2.06.
PTON’s total revenue declined 30.1% year-over-year to $792.70 million for the fiscal 2023 second quarter ended December 31, 2022. Its gross profit decreased 16.4% year-over-year to $235 million.
The company’s loss from operations was $331.30 million. Also, its net loss and net loss per share attributable to common stockholders came in at $335.40 million and $0.98, respectively.
Street expects PTON’s revenue for the current quarter ending March 2023 to decline 26.4% year-over-year to $710.05 million. Its EPS is expected to be negative $0.51 in the same quarter. The company has failed to surpass the consensus revenue estimates in three of the trailing four quarters.
The stock has declined 23.8% over the past month and 51.8% over the past year to close the last trading session at $10.91. The stock’s 24-month beta is 2.08.
PTON’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
PTON has an F grade for Stability and a D for Value, Sentiment, and Quality. It is ranked #51 out of 54 stocks within the Consumer Goods industry.
Click here to access the other ratings of PTON for Growth and Momentum.
Tilray Brands, Inc. (TLRY)
Headquartered in Leamington, Canada, TLRY researches, cultivates, and markets medical cannabis products globally. Its segments include Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business. The company provides cannabis products for both medicinal and adult use.
TLRY’s forward EV/EBITDA multiple of 25.81 is 97.1% higher than the industry average of 13.09.
During the fiscal second quarter that ended November 30, 2022, TLRY’s net revenue decreased 7.1% year-over-year to $144.14 million. Its operating expenses increased 4.1% year-over-year to $91.92 million. Also, the company’s adjusted EBITDA came in at $11.71 million, a 14.9% decline from the prior year’s quarter.
In addition, the company’s adjusted net loss and adjusted loss per share came in at $35.31 million and $0.06, respectively.
Analysts expect TLRY’s revenue to decline 3% year-over-year to $609.53 million for the fiscal year ending May 2023. The company is also likely to report a loss per share of $0.28 for the current fiscal year. The company missed its revenue estimates in three of four trailing quarters.
The stock has declined 52.8% over the past year and 23.6% over the past month to close the last trading session at $2.36. It has a 24-month beta of 1.89.
The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
The stock also has an F grade for Value, Momentum, and Sentiment and a D for Stability and Quality. Within the D-rated Medical – Pharmaceuticals industry, it is ranked last.
Beyond what we stated above, we also have TLRY’s ratings for Growth. Get all TLRY ratings here.
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SNAP shares fell $10.34 (-100.00%) in premarket trading Thursday. Year-to-date, SNAP has gained 15.53%, versus a 1.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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