Stocks have been under pressure as the Fed’s relentless monetary tightening has increased the likelihood of the economy entering a recession. The Federal Reserve appears to remain hawkish until inflation begins to fall more sharply, and the labor market weakens. According to minutes released Wednesday from the central bank’s December meeting, the Fed officials see higher rates for ‘some time’ ahead.
Many economists predict an approaching economic downturn. Kristalina Georgieva, IMF director, warned of a “difficult year” ahead, with one-third of the global economy potentially entering a recession this year. Furthermore, nearly 90% of CEOs polled by KPMG expect the economy to enter a recession this year, with 34% expecting it to be brief and moderate.
Given the backdrop, fundamentally weak stocks CarMax Inc. (KMX) and SiTime Corporation (SITM) might be best avoided.
CarMax Inc. (KMX)
KMX, with its subsidiaries, operates as a retailer of used vehicles in the United States. The company operates through two segments: CarMax Sales Operations and CarMax Auto Finance.
KMX’s forward EV/EBITDA multiple of 28.39 is substantially higher than the 9.27 industry average. Also, its forward EV/EBIT multiple is trading at 38.36, substantially higher than the industry average of 12.77.
KMX’s trailing-12-month ROCE of 10.86% is lower than the industry average of 12.76%, while its trailing-12-month ROTA of 2.22% is lower than the industry average of 4.42%.
KMX’s net sales and operating revenues came in at $6.51 billion for the third quarter that ended November 30, 2022, down 23.7% year-over-year. Its net earnings came in at 37.58 million, down 86.1% year-over-year. Moreover, the company’s EPS came in at $0.24, down 85.3% year-over-year.
Analysts expect KMX’s revenue to decrease 5.6% year-over-year to $30.13 billion in 2023. Its EPS is to decrease 58.8% year-over-year to $2.87 in 2023. It missed EPS estimates in three out of four trailing quarters. Over the past year, the stock has lost 46.9% to close the last trading session at $63.34.
KMX’s poor fundamentals are reflected in its POWR Ratings. The stock’s overall D rating is a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
KMX has an F grade for Growth and Sentiment and a D for Stability and Quality. Within the Auto Dealers & Rentals industry, it is ranked last among 21 stocks. Click here to see the additional POWR Ratings for Sentiment, Momentum, and Growth for KMX.
SiTime Corporation (SITM)
SITM designs, develops, and sells silicon timing systems solutions in Taiwan, Hong Kong, the United States, and internationally. The company provides resonators and clock integrated circuits and various types of oscillators.
SITM’s forward EV/Sales multiple of 5.50 is substantially higher than the 2.52 industry average. Also, its forward Price/Sales multiple of 7.46 is substantially higher than the industry average of 2.51.
SITM’s trailing-12-month Levered FCF margin of 0.24% is lower than the industry average of 7.48%, while its trailing-12-month asset turnover ratio of 0.54% is lower than the industry average of 0.63%.
SITM’s total operating expenses came in at $43.76 million for the third quarter that ended September 30, 2022, up 58.4% year-over-year. Its net income came in at $5.78 million, down 58.6% year-over-year. Moreover, the company’s EPS came in at $0.26, down 60.6% year-over-year.
Analysts expect SITM’s revenue to decrease 15.3% year-over-year to $239.43 million in 2023. Its EPS to decline 45.9% year-over-year to $1.93 in 2023. Over the past year, the stock has lost 60.6% to close the last trading session at $98.37.
SITM’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. It has an F grade for Growth and a D for Value and Stability. It is ranked #82 out of 93 stocks in the Semiconductor & Wireless Chip industry.
Beyond what is stated above, we’ve also rated STIM for Momentum, Sentiment, and Quality. Get all SITM ratings here.
KMX shares were trading at $65.79 per share on Friday afternoon, up $2.45 (+3.87%). Year-to-date, KMX has gained 8.05%, versus a 1.75% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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