2 Downgraded Stocks to Avoid at All Costs

The macroeconomic headwinds and the growing recession risks are leading to immense volatility in the stock market. While investors are awaiting the July inflation report, the Fed has signaled more rate hikes in the coming months, despite the slowing economy. Given the uncertainties ahead, we think it could be wise to avoid Teladoc Health (TDOC) and Compass (COMP), which were recently downgraded in our proprietary rating system. Read on…

The stock market has had a stormy year, with persistently high inflation and Fed’s monetary policy tightening. Ongoing macro-economic headwinds and the U.S economy contracting by 0.9% for the second straight quarter from April to June have increased the chances of a recession.

“In our view, Fed rate hikes are impacting the economy on cue. We believe that tightening has just started to broadly hit the economy and that our intermediate-term bearish base case remains intact,” Chris Senyek of Wolfe Research said in a note to clients.

Investors are assessing the Fed’s next move as the U.S inflation data is due to be released this week, while U.S. jobs data came in better than expected. Fed officials had earlier signaled continued rate hikes in the coming months to bring down the raging inflation.

Amid the turbulent market scenario, we think it could be best to avoid Teladoc Health, Inc. (TDOC) and Compass, Inc. (COMP) at all costs. These stocks were recently downgraded to D (Sell) in our proprietary POWR Ratings system.

Teladoc Health, Inc. (TDOC)

TDOC provides virtual healthcare services in the United States and internationally.

For the fiscal second quarter ended June 30, 2022, TDOC’s adjusted EBITDA decreased 30.1% year-over-year to $46.71 million. Net loss increased by 2,217.7% from the prior-year period to $3.10 billion. Also, its net loss per share increased by 2,134.9% to $19.22.

Street expects TDOC’s EPS to decline 71.6% year-over-year to a negative $0.11 in the quarter ending December 2022.

In terms of its forward Price/Cash Flow, TDOC is currently trading at 31.17x, 79.3% higher than the industry average of 17.39x. Its forward EV/EBITDA multiple of 29.74 is 119.9% higher than the industry average of 13.53.

The stock has slumped 74% over the past year and 57.78% year-to-date to close the last trading session at $38.79.

It’s no surprise that TDOC has an overall D rating, which translates to Sell in our POWR Ratings system. The stock has an F grade in Sentiment and a D in Value, Stability, and Quality.

TDOC is ranked #79 of 83 stocks in the Medical - Services industry. To see additional POWR Ratings for Growth and Momentum for TDOC, click here.

Compass, Inc. (COMP)

COMP operates as a cloud-based platform that provides an integrated suite of software for customer relationship management, marketing, client service, operations, brokerage, and adjacent services in the real estate industry.

For the fiscal quarter ended March 31, 2022, COMP’s operating expenses increased 19.3% year-over-year to $1.58 billion. Loss from operations and net loss stood at $185.50 million and $188.30, respectively, while the net loss per share came in at $0.45 in the same quarter.

Analysts expect COMP’s EPS to come in at a negative $0.09 for the quarter ended June 2022, representing a decline of 333.4% year-over-year.

In terms of its trailing-12-month Price/Book, COMP is currently trading at 2.45x, 42.5% higher than the industry average of 1.72x.

COMP’s shares have declined 45.2% over the past six months and 68.3% over the past year to close the last trading session at $4.60.

COMP’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system.

COMP has a Growth, Stability, Sentiment, and Quality grade of D. Out of the 154 stocks in the  Software - Application industry, it is ranked #137. Click here to see the additional COMP’s rating for Momentum and Value.

TDOC shares were trading at $35.45 per share on Tuesday afternoon, down $3.34 (-8.61%). Year-to-date, TDOC has declined -61.39%, versus a -12.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Komal Bhattar

Komal's passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.


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