On the heels of sticky inflation and strong economic data, the Fed will likely raise interest rates even higher than previously estimated. The potential rate hikes and an economic downturn are expected to keep the stock market highly volatile. In this scenario, investors should avoid Snap Inc. (SNAP), Plug Power Inc. (PLUG), Peloton Interactive Inc. (PTON), and AMC Entertainment Holdings, Inc. (AMC), given their weak fundamentals and bleak growth prospects.
A year after the first interest rate hike, the Fed has a long way to go in its fight against inflation. Hopes of disinflation were dashed with high inflation levels in goods, housing, and other sectors and recent economic data showing job growth and strong retail sales.
Minutes from the latest Fed meeting showed continued concerns about inflation and indicated that the Fed could raise interest rates higher in the coming months than it had previously forecasted. Moreover, major banks expect more rate hikes with no cuts anytime soon. Goldman Sachs and Bank of America anticipate three more Fed rate increases this year, pushing the terminal rate to 5.25%-5.5% by the June meeting.
According to veteran economist David Rosenberg, potential rate hikes could trigger a painful downturn in the second quarter of this year. The stock market has been highly volatile lately due to growing fears over the Fed’s persistent hawkish stance and an impending downturn, as evidenced by the CBOE Volatility Index’s 16.1% increase over the past three months.
Let’s take a closer look at the fundamentals of SNAP, PLUG, PTON, and AMC to understand why they could underperform in the coming months.
Snap Inc. (SNAP)
SNAP is a technology company offering a visual messaging application Snapchat that enables people to communicate visually through short videos and images. The company also provides an eyewear product, Spectacles, that connects with Snapchat and captures photos and video from a human perspective. In addition, it offers advertising products, including Snap ads and augmented reality (AR) ads.
SNAP’s trailing 12-month EBIT margin of negative 26.21% compares to the industry average of 9.32%. Likewise, the stock’s trailing 12-month net income margin of negative 31.07% compares to the industry average of 3.34%.
For the fourth quarter that ended December 31, 2022, SNAP’s operating loss widened by 1,044.6% year-over-year to $287.60 million. Its adjusted EBITDA declined 28.6% year-over-year to $233.28 million. Its net loss was $288.46 million, compared to a net income of $22.55 million in the prior-year quarter. Also, its non-GAAP net income per share was $0.14, down 36.4% year-over-year.
The consensus revenue estimate of $1.01 billion for the current quarter (ending March 31, 2023) indicates a 5.1% decline year-over-year. The company is expected to report a loss per share of $0.01 for the same period. Also, the company has missed the consensus revenue estimates in each of the trailing four quarters.
Over the past year, shares of SNAP have declined 61.4% to close the last trading session at $11.66.
SNAP’s POWR Ratings reflect this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a D grade for Sentiment, Growth, and Stability. It is ranked #54 out of 61 stocks in the D-rated Internet industry. Click here to see additional ratings of SNAP (Value, Momentum, and Quality).
Plug Power Inc. (PLUG)
PLUG offers end-to-end clean hydrogen and zero-emissions fuel cell solutions for supply chain and logistics applications, on-road electric vehicles, the stationary power market, and others in North America and internationally.
On January 31, 2023, PLUG and Johnson Matthey (JM), a global leader in sustainable technologies, entered a strategic partnership to accelerate the green hydrogen economy. The partnership will support PLUG in delivering its targeted revenue of $5 billion and $20 billion by 2026 and 2030, respectively.
To achieve these targets, PLUG and JM will co-invest in the CCM manufacturing facility, which will be built in the United States and will likely begin production in 2025. The gains from the partnership might not be realized anytime soon.
PLUG’s trailing 12-month gross profit margin of negative 23.89% compares to the industry average of 28.95%. Also, its trailing 12-month EBITDA and net income margin of negative 86.43% and 103.22% compare to the respective industry averages of 13.21% and 6.54%.
During the fourth quarter that ended December 31, 2022, PLUG’s gross loss widened 13.5% year-over-year to $194.36 million. Its total operating expenses increased 82.4% year-over-year to $485.19 million. The company’s operating loss worsened by 55.4% from the year-ago value to $679.55 million.
Furthermore, net loss attributable to the Company and net loss per share widened 57.4% and 52.4% year-over-year to $724.01 million and $1.25, respectively. As of December 31, 2022, its cash and cash equivalents were $690.63 million, compared to $2.48 billion as of December 31, 2021.
The company is expected to report a loss per share of $0.67 and $0.21 for fiscal 2023 and 2024, respectively. Moreover, the company has failed to surpass the consensus EPS estimates in each of the trailing four quarters, which is disappointing. Over the past year, PLUG has plunged 41.2% to close the last trading session at $13.67. The stock has declined 47.1% over the past six months.
PLUG’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system.
PLUG also has an F grade for Stability, Sentiment, and Quality and a D for Value. It is ranked #84 of 90 stocks in the Industrial – Equipment industry.
To see PLUG’s POWR Ratings for Growth and Momentum, click here.
Peloton Interactive Inc. (PTON)
PTON provides an interactive fitness platform and sells interactive fitness products internationally. The company operates through two segments: Connected Fitness Products and Subscriptions. Its product portfolio includes Peloton Bike, Peloton Bike+, Tread and Tread+, heart rate monitor, and dumbbells.
On October 6, 2022, PTON announced plans to cut about 500 jobs (12% of its workforce) in its fourth round of layoffs in 2022 as a part of its cost-cutting program to improve its bottom line.
PTON’s 20% trailing-12-month gross profit margin is 43.3% lower than the 35.26% industry average. Likewise, its trailing-12-month EBIT margin of negative 40.13% compares to the 7.66% industry average. Furthermore, the stock’s trailing-12-month net income margin is negative, compared to the industry average of 11.34%.
PTON’s total revenue declined 30.1% year-over-year to $792.70 million for the fiscal 2023 second quarter ended December 31, 2022. Its gross profit decreased 16.4% year-over-year to $235 million. The company’s loss from operations was $331.30 million. Also, its net loss and net loss per share attributable to common stockholders came in at $335.40 million and $0.98, respectively.
Analysts expect PTON’s revenue for the fiscal year (ending June 2023) to decline 23.3% year-over-year to $2.75 billion. Also, the company is expected to incur massive losses for at least two fiscal years. The stock has declined 10.4% over the past month and 38.4% over the past year to close the last trading session at $13.88.
PTON’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
PTON has an F grade for Stability and Sentiment and a D for Value and Quality. It is ranked #53 out of 56 stocks within the Consumer Goods industry. Click here to access the other ratings of PTON for Growth and Momentum.
AMC Entertainment Holdings, Inc. (AMC)
AMC engages in the theatrical exhibition business. The company owns, operates, and has interests in theaters in the United States and Europe.
AMC’s trailing-12-month gross profit margin of 7.43% is 85% lower than the industry average of 49.63%. And its trailing-12-month EBITDA margin of 0.24% is 98.7% lower than the 18.78% industry average. Moreover, the stock’s trailing-12-month net income margin of negative 24.89% compares to the industry average of 3.34%.
AMC’s revenues decreased 15.4% year-over-year to $990.90 million in the fourth quarter that ended December 31, 2022. Its operating loss worsened by 271.5% from the year-ago value to $224.40 million. The company’s adjusted EBITDA was $14.50 million compared to $159.20 million for the fourth quarter of 2021. Also, the operating cash burn generated for the quarter was $57.50 million.
Additionally, the company’s adjusted net loss and adjusted net loss per share widened by 167.3% and 133.3% year-over-year to $152.90 million and $0.14, respectively.
Analysts expect AMC to report a loss per share of $0.42 and $0.33 for fiscal 2023 and 2024, respectively. Shares of AMC slumped 23.7% over the past six months and 33.1% over the past year to close the last trading session at $6.25.
AMC’s weak fundamentals and prospects are reflected in its POWR Ratings. The stock has an overall rating of D, translating to a Sell in our proprietary rating system.
The stock has an F grade for Stability and a D for Sentiment and Quality. Within the F-rated Entertainment-Movies/Studios industry, AMC is ranked last among six stocks. To see additional POWR Ratings of AMC for Growth, Value, and Momentum, click here.
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SNAP shares rose $0.10 (+0.86%) in premarket trading Tuesday. Year-to-date, SNAP has gained 31.96%, versus a 5.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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