The stock market has been on a roller coaster of late. The benchmark S&P 500 has tumbled 16% to about 4,000 points this year, while the tech-heavy Nasdaq index has plunged 29% to around 11,300 points.
The chief strategist of UBS Investment Bank expects stocks to slump more, inflation to slow, and the U.S. economy to suffer a recession. He warned that American companies could see a blow to their profits as the country slumps into a recession.
In addition, according to the Institute of International Finance, as the war between Russia and Ukraine continues to weigh on the world economy, global growth could plunge to 2009 levels next year when adjusted for base effects.
Given this backdrop, we advise our investors to avoid fundamentally weak stocks Snap Inc. (SNAP) and Pineapple Energy Inc. (PEGY). These stocks have declined significantly this year.
Snap Inc. (SNAP)
SNAP operates as a camera company internationally. The company offers Snapchat, a camera application with various functionalities that enable people to communicate visually through short videos and images.
In August, it was reported that SNAP reached a $35 million settlement with the state of Illinois in a class-action lawsuit to pay Illinois residents who used the app’s “lenses” or “filters” features between a specific time. The lawsuit alleged that SNAP’s filters and lenses violated the state’s Biometric Information Privacy Act (BIPA).
SNAP’s trailing-12-month ROCE, ROTC, and ROTA of negative 35.29%, 9.32%, and 13.50% compared to their industry averages of 5.81%, 3.76%, and 2.14%, respectively.
In terms of its forward Price/Cash Flow, SNAP is currently trading at 284.38x, which is remarkably higher than the industry average of 9.18x. Its forward non-GAAP EV/EBITDA multiple of 47.25 is 455.6% higher than the industry average of 8.51.
SNAP’s operating loss rose 140.7% year-over-year to $435.24 million for the third quarter ended September 30, 2022. The company’s adjusted EBITDA declined 58.3% year-over-year to $72.64 million. Its non-GAAP net income decreased 50.8% year-over-year to $132.06 million, while its non-GAAP EPS declined 52.9% year-over-year to $0.08.
Analysts expect SNAP’s EPS to decline 72.1% year-over-year to $0.14 for the current fiscal year ending December 2022. Its revenue is expected to be $4.61 billion for the same year.
The stock has declined 79.2% over the past year to close its last trading session at $10.32.
SNAP’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SNAP is graded an F in Growth and a D in Momentum, Stability, Sentiment, and Quality. It is ranked #52 out of 58 stocks in the F-rated Internet industry.
Beyond the POWR Rating grades stated above, SNAP’s rating for Value can be seen here.
Pineapple Energy Inc. (PEGY)
PEGY provides photovoltaic solar energy systems to residential homeowners in the United States. The company also offers battery storage products and energy management control devices on solar systems that are paired with batteries. In addition, it develops and manufactures energy management software and hardware.
PEGY’s trailing-12-month gross profit margin of 24.39% is 16.5% lower than the industry average of 29.20%. Its trailing-12-month ROTC and ROTA of negative 62.06% and 8.72%, compared to their respective industry averages of 6.83% and 5.29%.
Moreover, PEGY’s trailing-12-months Price/Sales multiple of 1.57 is 16.2% higher than the industry average of 1.36.
PEGY’s total operating expenses rose 285.6% year-over-year to $2.52 million for the fiscal third quarter ending September 30, 2022. Its adjusted EBITDA declined 385.7% from the prior-year quarter to negative $1.05 million, while its net loss increased 80.6% year-over-year to $2.52 million. The company’s net loss per share amounted to $0.34.
PEGY has fallen 77.5 % over the past year to close its last trading session at $2.95. The stock has declined 69.3% year-to-date.
Its poor fundamentals are reflected in its POWR Ratings. PEGY has an overall rating of D, which equates to Sell in our POWR Ratings system.
The stock has an F grade for Stability and a D for Sentiment. It is ranked #8 out of 19 stocks in the Solar industry.
Beyond what we’ve stated above, we have also given PEGY grades for Value, Growth, Momentum, and Quality. Get all PEGY ratings here.
SNAP shares were trading at $10.18 per share on Friday afternoon, down $0.14 (-1.36%). Year-to-date, SNAP has declined -78.35%, versus a -14.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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