Technology stocks have witnessed a massive sell-off lately on investors’ concerns over the Fed’s aggressive policy tightening to combat soaring inflation. The Fed recently hiked the benchmark interest rates by 75 basis points, the largest increase since 1994.
Economists polled by Reuters believe the central bank could further hike rates by 75 basis points in July and 50 basis points in September. A rising interest rate environment doesn’t bode well for the debt-dependent tech industry.
Although the continued tech upgrades by enterprises to stay relevant and consistent innovations should help fundamentally sound tech stocks rebound soon, many beaten-down stocks still look overvalued given their limited growth prospects.
Beaten-down stocks Uber Technologies, Inc. (UBER), Shopify Inc. (SHOP), and Snowflake Inc. (SNOW) are trading at premiums to their peers despite declining significantly this year. So, these stocks are best avoided now.
Uber Technologies, Inc. (UBER)
UBER is a technology platform offering multi-modal transportation, ridesharing, restaurant food delivery, payment processing solutions, and freight carrier and shipper connections worldwide. The company operates through Mobility; Delivery; and Freight segments.
On May 2, 2022, UBER partnered with Trapeze Group, an operating company of software business Volaris Group that develops and customizes intelligent transportation systems to provide transit agencies across North America with more options to manage fluctuating ridership and vehicle demand and optimize paratransit service. This allows transit agencies to partner with Trapeze to easily book Uber trips for their riders directly through the Trapeze PASS platform and enhance same-day trip booking and reporting.
UBER’s loss from operations came in at $482 million for the fiscal 2022 first quarter ended March 31, 2022, representing a 68.4% decline from the prior-year period. The company’s net loss came in at $5.93 billion for the quarter, indicating a 5930.7% year-over-year rise.
Its loss per share came in at $3.04, up 4966.7% from the year-ago period. UBER had $4.18 billion in cash and cash equivalents as of September 30, 2021, indicating a 2.6% decline from the end of fiscal 2021.
Analysts expect the company’s EPS to be negative for fiscal 2022 ending December 31, 2022. It missed Street EPS estimates in two of the trailing four quarters.
The stock’s 33.72x forward EV/EBITDA is 251.8% higher than the 9.58x industry average. In terms of forward Price/Cash Flow, UBER is currently trading at 30.93x, which is 151.1% higher than the 12.32x industry average. UBER has lost 48.7% year-to-date to close yesterday’s trading session at $22.37, down 57.3% from its 52-week high of $52.36.
UBER’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
UBER has a D grade for Value, Momentum, Sentiment, and Stability. To see additional POWR Ratings for UBER’s Growth and Quality, click here.
Of the 81 stocks in the C-rated Technology – Services industry, UBER is ranked #68.
Shopify Inc. (SHOP)
Based in Ottawa, Canada, SHOP provides a cloud-based, multi-channel commerce platform designed for SMBs internationally. The company’s platform enables merchants to manage products and inventory, process orders and payments, ship orders, build customer relationships, leverage analytics and reporting, and access financing.
SHOP’s adjusted operating income for its fiscal 2022 first quarter ended March 31, 2022, came in at $31.91 million, representing an 84.9% decline from the prior-year period.
While its adjusted net income increased 90.1% year-over-year to $25.08 million, its non-GAAP EPS decreased 90.1% to $0.20. As of March 31, 2022, the company had $2.45 billion in cash and cash equivalents, down 12% from the end of fiscal 2021.
Analysts expect the company’s EPS to decline 85.2% year-over-year to $1.20 in its fiscal 2022 ending December 31, 2022. It missed the consensus EPS estimates in two of the trailing four quarters. Its EPS is expected to decline at an 18.9% rate per annum over the next five years.
The stock’s 181.53x forward EV/EBITDA is 1461.9% higher than the 11.62x industry average. In terms of forward Price/Cash Flow, SHOP is currently trading at 3399.65x, which is 20948.1% higher than the 16.15x industry average. The stock has lost 73.6% year-to-date to close yesterday’s trading session at $363.83, down 79.4% from its 52-week high of $1762.92.
SHOP’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
SHOP has an F grade for Sentiment and a D grade for Value, Stability, Growth, and Quality. Click here to see the additional ratings for SHOP’s Momentum.
The stock is ranked last of 31 stocks in the D-rated Internet - Services industry.
Snowflake Inc. (SNOW)
SNOW provides a cloud-based data platform that enables customers to consolidate data into a single source to drive business insights, build data-driven applications and share data worldwide. Its platform enables the creation of its private data exchange to share and collaborate with business partners, suppliers, and employees in a centrally managed data hub.
At Snowflake Summit 2022, held on June 14, 2022, SNOW launched Unistore. This new workload extends the power of the Snowflake Data Cloud to streamline and simplify the development of transactional applications while providing consistent governance, strong performance, and near-unlimited scale to customers.
Although its current customers like Adobe, Inc. (ADBE), IQVIA Holdings Inc. (IQV), Novartis AG (NVS), UiPath (PATH), and Wolt are already leveraging Unistore in private preview, this launch should further expand its reach going forward.
For its fiscal 2023 first quarter ended April 30, 2022, SNOW’s net loss declined 18.4% year-over-year to $165.79 million. The company’s loss per share came in at $0.53, down 24.3% from the prior-year period. The company had $1.06 billion in cash and cash equivalents as of April 30, 2022, down 2.1% from the end of fiscal 2021.
The stock’s 432.03x forward EV/EBITDA is 3617.1% higher than the 11.62x industry average. In terms of forward Price/Cash Flow, SNOW is currently trading at 144.12x, 792.3% higher than the 16.15x industry average. The stock has lost 57.8% to close yesterday’s trading session at $143.11, down 64.7% from its 52-week high of $405.
SNOW’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
SNOW has an F grade for Stability and a D grade for Value, Momentum, and Quality. Click here to see additional ratings for SNOW’s Growth and Sentiment.
SNOW is ranked #75 in the Technology - Services industry.
UBER shares were trading at $23.06 per share on Friday afternoon, up $0.69 (+3.08%). Year-to-date, UBER has declined -45.00%, versus a -17.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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