The Russia-Ukraine war has fostered uncertainties aplenty across global markets. Despite the U.S. markets being relatively stable currently, investor Carl Icahn believes an economic downturn could be on the horizon, given lingering inflation and logistical challenges.
Poor investor sentiment is evident in the SPDR S&P 500 ETF Trust’s (SPY) 3.8% decline over the past three months. Thus, investors must exercise caution and avoid investing in overvalued stocks with weak financials now.
In the absence of the requisite fundamental strength, shares of Sea Limited (SE) and On Holding AG (ONON) are currently trading at premiums to their peers. Given the possibility of a pullback, we think these stocks are best avoided now.
Sea Limited (SE)
Headquartered in Singapore, SE and its subsidiaries engage in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, the rest of Asia, and internationally.
On March 4, 2022, JP Morgan downgraded SE to ‘neutral’. The company’s latest inconsistent financials might affect its near-term growth potential.
SE’s digital entertainment revenue increased 104.1% year-over-year to $1.42 billion for the fourth quarter, ended Dec. 31, 2021. However, its operating loss came in at $442.07 million, compared to a $357.32 million loss in the year-ago period. Also, its net loss increased 17.5% year-over-year to $616.29 million. Its loss per share came in at $0.88, compared to a loss per share of $0.87 in the prior-year period.
In terms of forward EV/S, SE’s 4.44x is 99.8% higher than the 2.22x industry average. Furthermore, its 4.88x forward P/S is 210.1% higher than the 1.57x industry average.
SE’s EPS is expected to decline 22.7% in 2022. Its EPS is expected to remain negative in 2022 and 2023. Furthermore, it missed EPS estimates in each of the four trailing quarters. And over the past month, SE shares have declined 15.5% in price to close Friday’s trading session at $116.12.
SE’s POWR Ratings reflect its poor prospects. It has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has an F grade for Stability and a D grade for Growth, Value, Sentiment, and Quality. Click here to access the additional POWR Ratings for SE (Momentum). SE is ranked #70 of 72 stocks in the F-rated Internet industry.
On Holding AG (ONON)
Headquartered in Zurich, Switzerland, ONON develops and distributes sports products worldwide. It offers its products through independent retailers and distributors, online, and in stores.
ONON’s net sales increased 53.7% year-over-year to CHF 191.10 million ($204.32 million) for the fourth quarter, ended Dec. 31, 2021. However, its net loss came in at CHF186.98 million ($199.91 million), compared to a CHF 2.56 million ($2.74 million) loss in the year-ago period. Its loss per share came in at CHF 0.60, compared to a CHF 0.01 loss per share in the prior-year period. In addition, its operating result came in at a loss of CHF 354.90 million ($379.45 million), compared to CHF 3.58 million ($3.83 million) loss in the previous period.
In terms of forward EV/S, ONON’s 6.97x is 494.9% higher than the 1.17x industry average. Furthermore, its forward P/S of 7.48x is 702.9% higher than the 0.93x industry average.
Over the past three months, the stock has declined 33.8% to close Friday’s session at $25.55.
ONON has an overall F grade, which equates to a Strong Sell in our POWR Ratings system. It has an F grade for Growth, Value, and Sentiment and a D grade for Stability and Quality. Click here to access all the ONON ratings (Momentum). ONON is ranked last in the Athletics & Recreation industry.
SE shares were trading at $114.81 per share on Monday afternoon, down $1.31 (-1.13%). Year-to-date, SE has declined -48.68%, versus a -4.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
2 Stocks to Avoid at All Costs: Sea Ltd. and On Holding StockNews.com
