January’s labor market report showed that nonfarm payrolls rose by 517,000 in the month, nearly triple the Wall Street estimate, and the average hourly earnings rose 4.4% from a year ago.
Federal Reserve Chairman Jerome Powell recently said that while the disinflationary process has started, he expects it to be a long process. Powell also cautioned that the Fed would implement a more hawkish policy if the labor market remained strong or inflation stayed high, which led to a volatile stock market trading session.
Moreover, Minneapolis Federal Reserve President Neel Kashkari recently said that explosive job growth in January is evidence that the central bank has more work to do regarding taming inflation. He sees a likelihood that the Fed’s benchmark borrowing rate rising to 5.4% from its current target range of 4.5%-4.75%.
He added, “We need to raise rates aggressively to put a ceiling on inflation, then let monetary policy work its way through the economy.”
The persistent rate hikes could trigger a recession this year. So, fundamentally weak stocks Wynn Resorts, Limited (WYNN), Affirm Holdings, Inc. (AFRM), and ForgeRock, Inc. (FORG) might be best avoided now.
Wynn Resorts, Limited (WYNN)
WYNN designs, develops, and operates integrated resorts through its Wynn Palace; Wynn Macau; Las Vegas Operations; and Encore Boston Harbor segments.
In terms of its forward EV/Sales, WYNN is currently trading at 5.68x, which is 367.2% higher than the industry average of 1.21x. Its forward Price/Sales multiple of 3.12 is 220.9% higher than the industry average of 0.97.
During the fiscal third quarter that ended September 30, 2022, WYNN’s total operating revenues decreased 10.5% year-over-year to $889.72 million. Its operating loss amounted to $52.99 million. The company also reported an adjusted net loss attributable to WYNN of $135.40 million or $1.20 per share.
WYNN’s revenue estimate of $955.88 million for the fiscal fourth quarter ending December 2022 indicates a 9.2% year-over-year decline. Its loss per share is expected to come in at $1.16 for the same quarter. The company missed the consensus EPS estimates in three of the trailing four quarters, which is disappointing.
The stock has declined marginally over the past five days, closing the last trading session at 103.54.
WYNN’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
WYNN also has a D grade for Value and Stability. It is ranked #23 in the 30 stock-Entertainment – Casinos/Gambling industry.
Click here to see the additional POWR Ratings for WYNN for Growth, Momentum, Sentiment, and Quality.
Affirm Holdings, Inc. (AFRM)
AFRM provides digital and mobile commerce platforms by enabling a technology-driven payments network through partnerships with banks. The company’s platform allows consumers to select their repayment options while the loans are funded and issued by its bank partner.
Its trailing-12-month Price/Sales multiple of 3.38 is 14.5% higher than the industry average of 2.95. In terms of forward EV/Sales, the stock is trading at 4.57x, which is 49.2% higher than the industry average of 3.06x.
AFRM’s total operating expenses increased 49.1% year-over-year to $649.09 million in the first quarter that ended September 30, 2022. Its operating loss grew 73.1% year-over-year to $287.47 million. Additionally, the company’s net loss and net loss per share attributable to common stockholders came in at $251.27 million and $0.86, respectively.
Street expects AFRM’s EPS to decline 328.3% year-over-year to a negative $0.82 for the fiscal third quarter ending March 2023. Its revenue will likely amount to $418.01 million for the same quarter.
The stock has lost 72.7% over the past year and 48.5% over the past six months to close the last trading session at $17.21.
AFRM has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Growth and Quality. It is ranked #78 out of 80 stocks in the Technology – Services industry.
In addition to the POWR Ratings grades just highlighted, you can see the AFRM ratings for Value and Momentum here.
ForgeRock, Inc. (FORG)
FORG operates a digital identity platform to secure, manage, and govern the identities of customers, employees, partners, application programming interfaces (APIs), microservices, devices, and the Internet of things worldwide.
FORG’s forward EV/Sales multiple of 6.75 is 120.4% higher than the industry average of 3.06. In terms of forward Price/Sales, the stock is currently trading at 8.13x, which is 166.7% higher than the industry average of 3.05x.
FORG’s total operating expenses rose 38% year-over-year to $61.44 million for the third quarter (ended September 30, 2022). Its operating loss increased 45.4% year-over-year to $12.79 million. Moreover, the company’s non-GAAP net loss and net loss per share amounted to $9,14,000 and $0.01, respectively.
Its EPS is expected to come in at negative $0.03 for the fourth quarter that ended December 2022.
Over the past six months, the stock has declined 13.1% to close the last trading session at $19.96.
FORG’s POWR Ratings reflect its poor prospects. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system.
FORG also has a D grade for Value, Momentum, Stability, and Sentiment. Among the 53 stocks in the D-rated Software - Business industry, it is ranked #38.
Beyond what is stated above, we’ve also rated FORG for Growth and Quality. Get all FORG ratings here.
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WYNN shares fell $0.47 (-0.45%) in premarket trading Wednesday. Year-to-date, WYNN has gained 25.55%, versus a 8.57% 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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