Cathie Wood’s “disruptive innovation” strategy gained much steam in 2020. ARK Invest’s flagship fund, the ARK Innovation ETF’s (ARKK), gained 153% in 2020. However, ARKK sank 23% amid a broader market rally in 2021.
Furthermore, there appears to be a conviction building that Wood’s fund lineup’s losses will accelerate. According to data from IHS Markit Ltd. (INFO), short interest as a percentage of shares outstanding on ARKK, rose to a record of 8.6%. In addition, bets against Wood’s other funds, the ARK Genomic Revolution ETF (ARKG) and the ARK Next Generation Internet ETF (ARKW), were also near their record levels.
In this scenario, ARK Invest holdings Roblox Corporation (RBLX), Unity Software Inc. (U), and Invitae Corporation (NVTA) are trading more than 50% below their 52-week highs. Hence, we think these stocks might be best avoided in the near term.
Roblox Corporation (RBLX)
RBLX in San Mateo, Calif., is an online entertainment platform developer and operator that offers Roblox Client, an application that enables users to explore the 3D digital world, and Roblox Studio, a toolset that allows developers to create and publish content. The company went public by listing its Class A common stock on the New York Stock Exchange on March 10, 2021.
On Oct. 27, RBLX priced $1.0 billion of 3.875% Senior Notes due 2030. The notes offering might create a debt burden for RBLX.
For its fiscal third quarter, ended September 30, RBLX’s total costs and expenses increased 93.4% year-over-year to $586.78 million. Its loss from operations and net loss attributable to common stockholders rose 50.3% and 52.2%, respectively, from the same period last year to $77.45 million and $74 million.
The negative $0.14 consensus EPS estimate for the fourth quarter of 2021 indicates a 27.3% year-over-year decrease. Furthermore, RBLX has missed consensus EPS estimates in three out of the trailing four quarters.
The stock has declined 18.8% in price over the past six months and 22.1% over the past three months to close yesterday’s trading session at $63.02. It is currently trading 55.5% below its 52-week high of $141.60. The stock is also trading below its 50-day and 200-day moving averages of $101.58 and $86.64, respectively.
RBLX’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
RBLX has a Stability grade of F and a Growth, Value, Momentum, and Sentiment grade of D. In the 22-stock Entertainment – Toys & Video Games industry, RBLX is ranked #19. Click here to see the additional POWR Ratings for RBLX (Quality).
Unity Software Inc. (U)
U is a real-time 3D development platform that provides its customers with software solutions for creating and monetizing real-time 2D and 3D content, made for phones, tablets, PCs, consoles, and virtual reality devices. The company is based in San Francisco.
On December 1, the company announced that it had completed the acquisition of the visual-effects company Weta Digital’s tools, pipelines, and engineering talent. It aims to empower game developers, artists, and creators. But the transaction necessitated $1.63 billion of cash and stock outflow.
U’s non-GAAP loss from operations increased 43.1% year-over-year to $12.08 million in its fiscal third quarter, ended September 30. Its non-GAAP net loss rose 14.3% from the prior-year quarter to $14.81 million. The company’s cash, cash equivalent, and restricted cash balance were $766.25 million, down 57% from the same period last year.
Street expects U’s EPS to remain negative until at least its fiscal year 2022.
Over the past year, U’s stock has declined 33.4% in price to close yesterday’s trading session at $99.50. It has declined 32.6% over the past three months. The stock is currently trading 52.6% below its 52-week high of $210.00 and below its 50-day and 200-day moving averages of $144.40 and $123.79, respectively.
It is no surprise that U has an overall D rating, which translates to Sell in our POWR Rating system. The stock has a Value and Stability grade of D. It is ranked #17 in the Entertainment – Toys & Video Games industry.
In addition to the POWR Rating grades we have stated above, one can see U ratings for Growth, Momentum, Sentiment, and Quality here.
Invitae Corporation (NVTA)
NVTA in San Francisco operates as a medical genetics company that integrates genetic information for healthcare decision-making by clinicians and patients globally. The company’s offerings include genetic tests in various clinical areas, such as hereditary cancer, cardiology, metabolic conditions, and rare diseases.
On September 7, NVTA announced that it had agreed to acquire patient-centric consumer health tech company Ciitizen. The acquisition should create opportunities for the company. However, it was expected to result in about $325 million of cash and common stock outflow.
NVTA’s non-GAAP cost of revenue increased 75.7% year-over-year to $73.66 million in its fiscal third quarter, ended September 30. Its non-GAAP net loss and non-GAAP net loss per share rose 115.4% and 30.6%, respectively, from the prior-year quarter to $175.92 million and $0.81.
Analysts expect NVTA’s EPS to decrease 15.9% year-over-year to a negative $0.73 for its fiscal fourth quarter ended December 2021.
NVTA’s shares have declined 79% in price over the past year and 63.3% over the past six months to close yesterday’s trading session at $10.13. The stock is presently trading 81.8% below its 52-week high of $55.70. It is trading below its 50-day and 200-day Moving Averages of $15.37 and $26.01, respectively.
NVTA’s poor prospects are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
NVTA has an F grade for Sentiment and a D grade for Value, Momentum, Stability, and Quality. It is ranked #57 of the 59 stocks in the Medical – Diagnostics/Research industry. The industry is rated D. To see the additional POWR Rating for Growth for NVTA, click here.
Click here to checkout our Healthcare Sector Report for 2022
RBLX shares were unchanged in after-hours trading Thursday. Year-to-date, RBLX has declined -44.69%, versus a -9.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
3 Cathie Wood Stocks Down by More Than 50% From Their Highs StockNews.com
