In a slowing environment, where companies are experiencing earnings misses and dwindling profits amid the increasing likelihood of a recession, I’m highlighting three fundamentally weak stocks such as Whirlpool Corporation (WHR), iRobot Corporation (IRBT), and Purple Innovation, Inc. (PRPL) that might be wise to ditch now.
According to the latest data from the Bureau of Labor Statistics, the Consumer Price Index (CPI) revealed that inflation rose 0.1% over last month and 5% year-over-year in March, a slowdown from February's 0.4% monthly and 6% annual increase. Although inflation has been on a persistent decline in the past few months, it remains painfully high enough to continue taking a bite out of Americans’ pockets.
Grappling with year-long high inflation and interest rate hikes, Americans have cut their spending, as indicated by the 1% drop in March’s retail sales due to a decline in auto sales, electronics, and at-home and garden stores.
Persistent rate hikes and recession fears have fueled an exodus from riskier assets to cash, bonds, and other havens. As consumers battle rising prices and borrowing costs, Home Depot’s (HD) CEO Edward Decker flagged greater price sensitivity among consumers, primarily for big-ticket discretionary items. This could affect the performance of the home improvement industry.
Given this backdrop, WHR, IRBT, and PRPL’s financials and overall fundamentals are lacking, putting them at high risk of poor performance.
Whirlpool Corporation (WHR)
WHR operates as a kitchen and laundry company that markets and distributes home appliances and other consumer products such as refrigerators, freezers, ice makers, laundry appliances, dishwasher appliances, as well as mixers primarily under the Whirlpool, KitchenAid, Maytag, Consul, Brastemp, Amana, Bauknecht, JennAir, Indesit, Yummly and InSinkErator brand names.
In terms of forward non-GAAP PEG, WHR is trading at 9.91x, 674.1% higher than the industry average of 1.28x. The stock’s forward Price/Book of 2.70x is 2.6% higher than the 2.63x industry average.
For the fiscal fourth quarter that ended December 31, 2022, WHR’s net sales decreased 15.3% year-over-year to $4.92 billion. Its gross margin declined 39.3% from the prior-year quarter to $645 million.
The company’s operating profit and attributable net loss amounted to $1.43 billion and $1.61 billion compared to operating profit and net earnings of $495 million and $298 million, respectively, in the same period last year. Also, its loss per share came in at $29.35 versus an EPS of $4.90 in the previous year’s quarter.
The consensus EPS estimate of $2.15 for the fiscal first quarter (ended March 31, 2023) represents a 59.5% decline year-over-year. The consensus revenue estimate of $4.49 million for the past quarter represents an 8.7% decrease from the same period last year. The company has a grim earnings surprise history, as it missed the consensus revenue estimates in three of the trailing four quarters.
The stock has slumped 18.3% over the past year and 13.5% over the past nine months to close the last trading session at $139.59.
WHR’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, 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.
It also has a D grade for Growth and Sentiment. Among the 55 stocks in the Home Improvement & Goods industry, it is ranked #46. Click here to see the other ratings of WHR for Value, Momentum, Stability, and Quality.
iRobot Corporation (IRBT)
IRBT is a global consumer robot company that designs and builds durable robots and intelligent home innovation products that make life easier. Its portfolio of home robots and smart home devices features technologies for the connected home and advanced concepts in cleaning, mapping and navigation, human-robot interaction, and physical solutions.
The stock’s Price/Sales and Price/Book multiples of 1.01 and 3.16 are 16.8% and 19.8% higher than the 0.86 and 2.63 industry averages, respectively.
During the fourth quarter that ended December 31, 2022, IRBT’s revenue decreased 21.4% year-over-year to $357.87 million. Its gross profit fell 32.6% from the year-ago value to $85.23 million. The company’s non-GAAP operating and net losses widened 83.2% and 47.1% from the year-ago value to $61.62 million and $41.72 million, respectively. Also, its adjusted loss per share came in at $1.52, widening 44.8% year-over-year.
Analysts expect IRBT’s EPS to decrease by 100% year-over-year in the first quarter (ended March 31, 2023) to a loss per share of $1.32 and remain negative for the fiscal year 2023. Its revenue for the to-be-reported quarter is expected to decline 18.5% year-over-year to $238.11 million. Moreover, it failed to surpass the consensus revenue estimates in each of the trailing four quarters.
The stock has declined 25.9% over the past nine months to close the last trading session at $41.51.
IRBT’s POWR Ratings reflect this weak outlook. It has an overall rating of D, equating to Sell in our proprietary rating system. It has a D grade for Growth, Stability, and Sentiment. In the same industry, it is ranked #44 out of 55 stocks.
Beyond what I’ve stated above, we have also given IRBT grades for Value, Momentum, and Quality. Get all the IRBT ratings here.
Purple Innovation, Inc. (PRPL)
PRPL offers a range of branded and premium comfort products, including mattresses, pillows, cushions, bases, sheets, and more. It develops its products through its proprietary gel technology GelFlex Grid, which differentiates its offerings from competitors.
In terms of forward EV/EBITDA and Price/Cash Flow, PRPL is trading at 34.38x and 13.20x, 263.6% and 48.8% higher than the industry averages of 9.45x and 8.87x, respectively.
PRPL’s net revenue decreased 22.2% year-over-year to $145.12 million for the fourth quarter (ended December 31, 2022). Its gross profit fell 21.6% from the year-ago value to $50.73 million, while its operating loss amounted to $11.12 million in the same period. The company’s attributable net loss came in at $70.13 million and $0.77 per share, widening 225.5% and 97.4% year-over-year, respectively.
Street expects PRPL’s revenues to decline 26.8% year-over-year to $104.78 million in the first quarter that ended on March 31, 2023. Its loss per share is expected to be $0.12 in the same period and remain negative in the current year. Over the past three months, the stock has declined 50.4% to close the last trading session at $2.86. Also, it has declined 40.3% year-to-date.
PRPL’s POWR Ratings are consistent with its bleak prospects. The stock has an overall rating of D, which translates to Sell in our proprietary rating system.
It has a D grade for Stability, Sentiment, and Quality. Within the same industry, it is ranked #43. To see additional ratings of PRPL for Growth, Value, and Momentum, click here.
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WHR shares were trading at $138.49 per share on Wednesday afternoon, down $1.10 (-0.79%). Year-to-date, WHR has declined -0.83%, versus a 8.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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