Inflation increased more than estimated for September. The Consumer Price Index (CPI) soared 8.2% year-over-year, still hovering near the highest levels since the early 1980s. The stubbornly high inflation is expected to keep the Fed on track with its aggressive rate hikes.
Michelle Meyer, the chief U.S. economist at the Mastercard Economics Institute, said, "The more inflation comes in above expectations, the more they're going to have to prove that commitment, which means higher interest rates and cooling in the underlying economy."
Moreover, former PIMCO chief economist Paul McCulley said, "The Fed will keep hiking rates by 75 basis points until "something cracks" in the data."
Amid such apprehensions, market volatility and recession odds are rising. Nationwide's eighth annual Advisor Authority survey has discovered that 54% of investors expect increased volatility over the next year, while 74% fear an impending recession.
Given the grim outlook, fundamentally weak stocks Snap Inc. (SNAP) and Carvana Co. (CVNA) might be best avoided this fall.
Snap Inc. (SNAP)
SNAP operates as a camera company in North America, Europe, and internationally. The company offers Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight.
For the second quarter that ended June 30, 2022, SNAP's revenue came in at $1.11 billion, up 13.1% year-over-year. However, its net loss came in at $422.07 million, up 178.3% year-over-year, while its non-GAAP loss per share came in at $0.02, compared to an EPS of $0.10 in the previous period.
SNAP's forward EV/Sales of 3.50x is 84.4% higher than the industry average of 1.90x. Its forward Price/Book of 5.56x is 221.5% higher than the industry average of 1.73x.
SNAP’s trailing-12-month negative EBITDA margin of 15.28% is lower than the industry average of 18.63%, while its trailing-12-month negative net income margin of 18.31% is lower than the industry average of 5.73%.
SNAP's EPS is expected to decrease 84% year-over-year to $0.08 in 2022. Over the past year, the stock has lost 85.9% to close the last trading session at $10.58.
SNAP’s POWR Ratings reflect its poor prospects. It has an overall F grade, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, it has an F grade for Stability and a D for Growth, Momentum, Sentiment, and Quality. Click here to access the SNAP ratings for Value. It is ranked #57 out of 63 stocks in the F-rated Internet industry.
Carvana Co. (CVNA)
CVNA and its subsidiaries operate an e-commerce platform for buying and selling used cars in the United States.
CVNA's net sales and operating revenues came in at $3.88 billion for the second quarter that ended June 30, 2022, up 16.4% year-over-year. However, its net loss came in at $238 million compared to an income of $22 million, while its loss per share came in at $2.35 compared to an EPS of $0.26 in the year-ago period.
CVNA's forward Price/Book of 14.59x is 515.7% higher than the industry average of 2.37x.
CVNA’s trailing-12-month negative EBITDA margin of 4.77% is lower than the industry average of 11.25%. Its trailing-12-month negative net income margin of 4.24% is lower than the industry average of 5.69%.
Street expects CVNA's EPS to decrease 426.4% year-over-year to negative $8.58 in 2022. It missed EPS estimates in all four trailing quarters. Over the past year, the stock has lost 93.3% to close the last trading session at $18.87.
CVNA has an overall F grade, equating to a Strong Sell in our POWR Ratings system. Also, it has an F grade for Growth, Stability, Sentiment, and Quality.
Click here to access CVNA’s ratings for Value and Momentum. It is ranked last in the Internet industry.
SNAP shares were trading at $10.38 per share on Friday morning, down $0.20 (-1.89%). Year-to-date, SNAP has declined -77.93%, versus a -22.95% 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.
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