As the pandemic-induced constraints are easing, the demand for energy, labor, and transport has surged. This sudden acceleration in demand is putting a huge strain on supply chains and affecting several companies.
Moreover, despite the change in administrative power, Trump-imposed tariffs on about $350 billion of Chinese-made products continue to remain in place, leading to high costs for importers. While the Biden administration comprehensively evaluates US-China trade policy, the pressure to address the problem is mounting as the global supply chain problems worsen.
Shares of Nike Inc. (NKE), Peloton Interactive Inc. (PTON), and Bed Bath and Beyond (BBBY) have fallen due to the ongoing supply chain disruptions, as investors expected their financials to be impacted in the near term. So, it could be wise to avoid these overvalued stocks.
Nike Inc. (NKE)
NKE designs, develops, promotes, and sells sports footwear, clothing, equipment, and accessories worldwide. In addition, NKE licenses agreements allowing non-affiliated companies to produce and sell clothes, digital gadgets, apps, and other sports-related equipment under NKE-owned trademarks.
According to its Chief Financial Officer Matt Friend, the company expects to witness short-term inventory shortages over the next few quarters. NKE’s earnings loss for the global brand division increased 16% year-over-year to $987 million in the first quarter ended August 31, 2021.
NKE’s EPS is expected to decline 17.8% in the next quarter. The stock has declined 10.6% over the past month and 6.9% over the past three months, as supply chain congestion continues to hurt its business more than anticipated.
In terms of forward non-GAAP P/E, NKE is currently trading at 41.79x, 189.8% higher than the industry average of 14.42x. Also, in terms of its forward EV/Sales, the stock is currently trading at 4.92x, 240.6% higher than the industry average of 1.45x.
NKE’s POWR ratings are consistent with this bleak outlook. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NKE has rated a D grade for Value and Growth. Within the Athletics & Recreation industry, it is ranked #27 of 36 stocks.
To see additional POWR Ratings for Stability, Sentiment, Quality, and Momentum for NKE, click here.
Peloton Interactive Inc. (PTON)
PTON sells interactive fitness products worldwide. Under the brands, Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+, the company provides connected fitness products with touchscreens that stream live and on-demand classes. Additionally, the company offers connected fitness subscriptions for various household users and access to various live and on-demand courses.
Last month, Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, started investigating certain officers and directors of BBBY following a class-action lawsuit filed by long-term stockholders. This could negatively impact the company’s share price in the near term.
For the fourth quarter ended June 30, 2021, PTON’s gross profit declined 12.2% year-over-year to $253.6 million. The company operating expenses increased 179.4% from year-ago value to $555.4 million. Its operating loss surged 235.2% from the prior-year quarter to $301.7 million, while its net loss increased 251.5% year-over-year to $313.2 million.
The company’s EPS is expected to decline 640% year-over-year to $2.22 in the current year. Analysts expect its EPS to remain negative in fiscal 2023. The stock has declined 13.3% over the past month and 42.9% year-to-date, driven by supply-chain constraints.
Currently, PTON looks highly overvalued. In terms of forward Price/Book, PTON’s 22.52x is 566.1% higher than the industry average of 3.38x. In addition, its forward EV/Sales of 4.85x is 235.2% higher than the industry average of 1.45x.
PTON’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.
It also has an F grade for Stability, Value, and Growth. PTON is ranked #70 of 71 stocks in the C-rated Consumer Goods industry.
Click here to see the additional POWR Ratings for PTON. (Quality, Momentum, and Sentiment).
Bed Bath and Beyond (BBBY)
BBBY runs a chain of domestic merchandise retail stores. North American Retail and Institutional Sales are the two operational segments of the company. The company operated 1,020 shops as of February 27, 2021, including 834 Bed Bath & Beyond stores in 50 states, 132 buybuy BABY stores, and 54 Harmon, Harmon Face Values, or Face Values stores. In addition, the company operates Decorist, an online interior design platform that provides customized home design services.
The retailer has been dealing with industry wide supply chain issues, which, according to BBBY’s Chief Executive Mark Tritton, have been “pervasive.”
During the second quarter ended August 28, 2021, BBBY’s revenue declined 26.2% year-over-year to $1.98 billion. Its operating loss came in at $84.11 million, compared to an operating profit of $270.54 million in the prior-year period. The company reported a net loss of $73.22 million, compared to a net profit of $217.90 million in the second quarter of 2020. Its loss per share amounted to $0.72, compared to an EPS of $1.75 in the same period last year.
Analysts expect BBBY’s revenue to decline 10.4% year-over-year to $8.27 billion in the current year. The stock has declined 11.6% over the past year and 40.2% over the past month.
In terms of forward non-GAAP P/E, BBBY is currently trading at 16.65x, 15.5% higher than the industry average of 14.4x. Also, in terms of its forward EV/EBIT, the stock is currently trading at 18.98x, 45.6% higher than the industry average of 13.03x.
BBBY’s weak fundamentals are reflected in its POWR ratings. The stock has an F grade for Sentiment and Stability. In the Home Improvements & Goods industry, it is ranked #37 of 64 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see the BBBY ratings for Growth, Value, Quality, and Momentum here.
NKE shares were trading at $146.52 per share on Monday afternoon, down $0.54 (-0.37%). Year-to-date, NKE has gained 4.16%, versus a 15.44% 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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