The Federal Reserve will most likely raise interest rates by 75 basis points for the second straight month at its meeting later this month as last month’s Consumer Price Index (CPI) increased higher than expected to hit a new four-decade high. Therefore, the software industry and the broader tech sector could witness further pullback.
While increasing dependence on software with continued digitization and migration to cloud platforms should help the industry rebound soon, it could be difficult for small and fundamentally weak industry participants to survive the current challenges.
Increasing costs of borrowing might significantly weigh on fundamentally-weak small-cap or micro-cap stocks Compass, Inc. (COMP), VTEX (VTEX), Fastly, Inc. (FSLY), Latch, Inc. (LTCH), and Blend Labs, Inc. (BLND). Therefore, these stocks are best avoided now.
Compass, Inc. (COMP)
COMP provides real estate brokerage services and operates a cloud-based platform that offers an integrated suite of software for CRM, marketing, client service, operations, brokerage, and adjacent services in the real estate industry.
The company offers mobile apps that allow agents to manage their business anywhere and designs consumer-grade interfaces, an automated workflow for agent-client interactions. It has a $1.74 billion market capitalization.
On May 3, 2022, COMP agreed to acquire Consumer’s Title Company of California, Inc., a leading real estate settlement service provider, which could help expand COMP’s settlement services footprint in California.
Both companies believe pairing talented professionals with the best technology can make the title and escrow process more efficient and transparent for home buyers. This should help them witness good demand in the coming months.
For the fiscal first quarter ended March 31,2022, COMP’s loss from operations decreased 12.8% year-over-year to $185.50 million. The company’s net loss came in at $188.30 million, representing an 11.4% year-over-year improvement.
Its loss per share came in at $0.45, down 73.1% from the year-ago period. As of March 31, 2022, the company had $475.90 million in cash and cash equivalents.
Analysts expect a negative EPS estimate for fiscal 2022 ending December 31, 2022. Its EPS is expected to grow at a rate of 62.5% per annum over the next five years. The stock has lost 55.2% year-to-date to close the last trading session at $4.07.
COMP’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a D grade for Growth, Stability, Quality, and Sentiment. Click here to see the additional ratings for COMP’s Value and Momentum. COMP is ranked #137 of 156 stocks in the F-rated Software - Application industry.
VTEX (VTEX)
Headquartered in London, the U.K., VTEX provides a software-as-a-service (SaaS) digital commerce platform for enterprise brands and retailers internationally. Its platform combines commerce, order management, and marketplace, allowing enterprises to sell various products across channels.
It integrates with suppliers, distributors, third-party vendors, franchisees, warehouses, brick-and-mortar stores, and enterprises to implement new business models and digital experiences, including direct-to-consumer, marketplace, ship from store, and drop-ship. It has a $531.06 million market capitalization.
VTEX’s loss from operations for its fiscal 2022 first quarter ended March 31, 2022, increased 38.6% year-over-year to $16.67 million. The company’s net loss came in at $19.09 million, up 53.2% from the prior-year period.
Its loss per share came in at $0.10, representing a 38.9% rise from the year-ago period. As of March 31, 2022, the company had $99.62 million in cash and cash equivalents.
The negative consensus EPS estimate for fiscal 2022 ending December 31, 2022, represents a 1% rise from the prior-year period. The stock has lost 74.1% year-to-date to close the last trading session at $2.78.
VTEX’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
Additionally, it has a D grade for Momentum and Quality. Click here to see VTEX ratings for Growth, Value, Stability, and Sentiment. VTEX is ranked #122 in the Software - Application industry.
Fastly, Inc. (FSLY)
FSLY operates an Infrastructure-as-a-Service edge cloud platform, which offers cloud computing, image optimization, security, edge computer technology, streaming solutions, and real-time content delivery network (CDN) services. It has a $1.41 billion market capitalization.
On May 19, 2022, FSLY acquired Glitch, a software company specializing in project management tools. This acquisition enhances application development into a single, seamless developer experience to deliver globally performant, secure, and reliable applications at scale and help enterprises grow their business.
FSLY’s non-GAAP operating loss for its fiscal 2022 first quarter ended March 31, 2022, increased 37.5% year-over-year to $17.74 million. The company’s non-GAAP net loss came in at $18.04 million, indicating a 32.4% rise from the prior-year period.
Its non-GAAP loss per share came in at $0.15, representing a 25% rise from the prior-year period. As of March 31, 2022, the company had $245.79 million in cash and cash equivalents.
Analysts expect the company’s EPS to be negative for fiscal 2022 ending December 31, 2022. The stock has lost 67.2% year-to-date to close the last trading session at $11.64.
FSLY’s weak prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
FSLY has a D grade for Value, Stability, Momentum, Quality, and Sentiment. Click here to see the additional rating for FSLY’s Growth. FSLY is ranked #143 in the same industry.
Latch, Inc. (LTCH)
With a $172.34 million market capitalization, LTCH is an enterprise technology company that offers LatchOS, an operating system that extends smart access, delivery and guest management, smart home and sensors, connectivity, and personalization and services.
The company also offers hardware devices that include M, C, and R series door-mounted access control products; Latch Intercom integrates into the Latch core access systems and allows audio and video calls for remote unlocking; Latch Camera, Latch Hub, and Latch Leak Detector.
For its fiscal 2022 first quarter ended March 31, 2022, LTCH’s loss from operations came in at $50.62 million, indicating a 62% rise from the prior-year period. While its net loss increased 16.1% year-over-year to $44.23 million, its loss per share fell 91.5% to $0.31. The company had $90.96 million in cash and cash equivalents as of March 31, 2022.
The consensus EPS estimate is negative for its fiscal 2022 ending December 31, 2022. The stock has declined 84.3% year-to-date and closed the last trading session at $1.19.
LTCH’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. Moreover, it has an F grade for Quality and a D for Stability, Sentiment, and Momentum.
In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for LTCH’s Growth and Value here. LTCH is ranked #151 in the Software - Application industry.
Blend Labs, Inc. (BLND)
BLND provides cloud-based software solutions for financial services through its Blend Platform and Title365 segments. The company also provides a suite of mortgage products that facilitates the homeownership journey for consumers comprising close, income verification for a mortgage, homeowners’ insurance, and realty.
It serves banks, credit unions, financial technology companies, and non-bank mortgage lenders. It has a $686.19 million market capitalization.
On April 26, 2022, BLND launched Blend eVault, a repository of electronic promissory notes available through the platform; Blend Signing Room, its remote online notarization (RON) solution; and Blend RON Eligibility Engine, which provides RON-eligibility information.
These three new eClosing products provide borrowers with a fully online mortgage closing experience, in addition to helping lenders compete by shortening closing cycles and lowering error rates.
For its fiscal 2022 first quarter ended March 31, 2022, BLND’s non-GAAP loss from operations increased 110.2% year-over-year to $39.53 million. The company’s non-GAAP net loss came in at $45.01 million, representing a 141.4% year-over-year rise.
Its loss per share decreased 46.7% to $0.32 from the prior-year period. As of March 31, 2022, the company had $167.67 million in cash and cash equivalents.
Analysts expect the company’s EPS to be negative for fiscal 2022 ending December 31, 2022. The stock has declined 59.8% year-to-date to close the last trading session at $2.95.
BLND’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
The stock has an F grade for Sentiment and a D for Growth, Stability, Momentum, and Quality. Click here to see the additional ratings for BLND’s Value. BLND is rated #145 in the same industry.
COMP shares were trading at $3.99 per share on Monday afternoon, down $0.08 (-1.97%). Year-to-date, COMP has declined -56.11%, versus a -18.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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