Rampant inflation has caused a domino effect. Aggressive rate hikes by the Fed to lower prices have fueled recession fears and exacerbated market volatility. Amid such turmoil, it could be wise to retire or sell short the fundamentally weak Block ( SQ ), ChargePoint ( CHPT ), and Peloton ( PTON ) stocks. Continue reading….
The An increase of 8.3% on an annual basis in August the Consumer Price Index (CPI) has exceeded economists’ estimates and reinforced the Fed’s view of more aggressive rate hikes. As such, market volatility is high ahead of the Fed’s next rate decision on September 21, with a third consecutive 75bps rate hike almost certain.
Persistent monetary tightening has created collateral damage for individuals and businesses with increased borrowing costs, thereby increasing the chances of the economy slipping into recession.
Given such uncertain economic and market conditions, it would be wise to avoid fundamentally weak Block, Inc. stock.SQ), ChargePoint Holdings, Inc. (CHPT), and Peloton Interactive Inc. (PTON) or sell it short. These stocks seem to be falling knives.
Block, Inc. (SQ)
SQ is a technology company that creates tools that enable businesses, vendors and individuals to participate in the digital economy. The company operates in two areas: Square and Cash App.
On August 24, it was announced that a class action lawsuit had been filed against SQ alleging security negligence following a data breach of 8.2 million users on the Cash App. The company disclosed the breach through an SEC filing four months after the incident without explaining the delay.
On August 19, the Consumer Financial Protection Bureau (CFPB) filed a petition asking a federal judge to compel SQ to fully comply with the demands of an investigation into Cash App’s handling of payments and disputes. The company has yet to provide all the documents and data requested by the bureau in August 2020 and August 2021.
SQ’s total net revenue fell 5.9% year over year to $4.40 billion for the second quarter ended June 30, 2022. The company reported an operating loss of $213.77 million for the quarter, compared with 124, 99 million dollars in the last year period.
In addition, the company adjusted EBITDA for the quarter was down 47.9% year over year to $187.34 million. It reported adjusted net income and adjusted net earnings per share of $110.74 million and $0.36, down 56.8% and 63.3% year over year, respectively.
Analysts expect SQ’s revenue for fiscal 2022 (ending December 2022) to decline 0.5% year over year to $17.58 billion. The company’s EPS for the current year is expected to decline 48.9% year over year to $0.87.
The stock plunged 57.6% year-to-date and 21.8% over the past month to close the last session at $69.18.
SQ’s POWR Reviews are consistent with his dismal performance and bleak outlook. The stock has an overall rating of D, which equates to a Sell in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to its optimum degree.
It also has a grade of D for stability, feel and quality. Ranked #91 of 107 stocks in the Financial Services (Business) industry. Click here to access SQ’s ratings for Growth, Momentum and Value.
ChargePoint Holdings, Inc. (CHPT)
CHPT provides networked charging technology solutions in North America and Europe. The company caters to various sectors including commercial, fleet and residential.
On August 9, 2022, it was announced that CHPT would be supplying chargers to new stores from Starbucks Corporation (SBUX) in collaboration with Volvo (VLVLY) on a 1,350-mile drive from the Colorado Rockies to the Starbucks Support Center in Seattle. However, it may take a long time before this correlation has a significant impact on the company’s finances.
For the second quarter of the fiscal year ended July 31, 2022, CHPT’s non-GAAP operating expenses increased 50.2% year-over-year to $79.78 million. As a result, the company’s loss from operations during the same period widened 21.6% year-on-year to $90.37 million.
CHPT’s non-GAAP net loss widened 53.2% from the prior quarter to $61.86 million. The company reported a quarterly loss per share of $0.28.
Analysts expect CHPT’s loss per share for the fiscal 2023 quarter ended Oct. 31, 2022, to widen 20% year over year to $0.18. The company’s loss per share for the fiscal is also expected to worsen by 23.4% to $0.76.
The stock has fallen 14% in the past year and 3.7% in the past month to close the last session at $19.25.
CHPT’s weak fundamentals are reflected in POWR ratings. It has an overall rating of F, which equates to a strong sell in our proprietary rating system. It also has grades of F for value and stability and a D for quality.
It is ranked #78 among 89 stocks in the Industrial equipment industry. Click here to see CHPT’s other ratings for Development, Momentum and Emotion.
Peloton Interactive Inc. (PTON)
PTON provides an interactive fitness platform and sells interactive fitness products in North America and internationally. The company operates in two segments: Connected Fitness Products and Subscription.
Yesterday, a US International Trade Commission judge issued a ruling upholding allegations that PTON and two other companies infringed on DISH Networks” (PLATE) patents.
On Monday, September 12, John Foley and Hisao Kushi, two founders of PTON, announced their resignations as part of an executive reshuffle, amid adverse fortunes for the company. He is plagued due to supply chain and delivery challenges, the company ramped up production to meet rising demand, only to find himself with plenty of machines as consumers returned to the gyms.
Last month, PTON announced plans to cut around 800 jobs to reduce its operational footprint and costs. In addition to the job cuts, the company announced price increases on certain products and the outsourcing of functions such as equipment deliveries and customer service to third-party vendors. The company will also gradually close several retail showrooms starting next year.
For the fourth quarter of fiscal 2022 ended June 30, 2022, PTON’s total revenue decreased 27.6% year over year to $678.7 million. Its operating loss widened 298.6% from the previous quarter to $1.20 billion. The company’s total loss worsened by 301.8% from the previous year’s value to $1.24 billion. Net loss per share widened 250.5% year over year to $3.68.
Analysts expect PTON’s revenue to decline 14.6% year over year to $3.06 billion in fiscal 2022. Additionally, the company is expected to report losses for the current and next two fiscals. The stock is down 71.4% year-to-date and 24.4% over the past month to close last session at $10.68.
PTON’s POWR ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a strong sell on the proprietary rating system. PTON has an F grade for quality and feel and a D for value and stability.
Inside Consumer goods industry, ranked #57 of 59 stocks. Click here to see additional POWR growth and momentum ratings for PTON.
Shares of SQ were down $1.64 (-2.37%) in premarket trading on Friday. Year-to-date, SQ has fallen -57.17%, versus a -17.25% gain for the benchmark S&P 500 over the same period.
About the Author: Santanu Roy
Fascinated by the traditional and evolving factors that influence investment decisions, Santanu decided to pursue a career as an investment analyst. Before moving to investment research, he was a process partner at Cognizant. With a master’s degree in business administration and a fundamental approach to business analysis, he aims to help private investors identify the best long-term investment opportunities.
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