The stock market and economy have struggled significantly this year due to multi-decade high inflation, aggressive monetary policy tightening by the Federal Reserve, the economic fallout from Russia’s invasion of Ukraine, and the growing possibility of a recession.
The Fed raised interest rates this year at the fastest since the 1980s, including 75 basis point hikes in the last four meetings to combat persistently high inflation. Since the Consumer Price Index (CPI) data for October came in cooler than expected, Fed Chair Jerome Powell hinted that the central bank is prepared to downshift the size of rate increases at its meeting this month.
While Fed officials signaled plans to raise their benchmark interest rate by 50 basis points this week, the strong November jobs report underscores the risk that the Fed will take the terminal rate above 5%. Moreover, the central bank seems willing to cause a recession to fight against stubborn inflation.
Continued fears of a recession have turned 2023 stock market predictions unusually bearish. Most big shots, including Bank of America (BAC) and Morgan Stanley (MS), expect stocks to crash more than 20% next year.
Given the current challenging market conditions, investors are short-selling popular yet fundamentally weak stocks Block, Inc. (SQ), Roku, Inc. (ROKU), and Lucid Group, Inc. (LCID). So, these stocks could be best avoided now.
Block, Inc. (SQ)
SQ creates tools enabling sellers to accept card payments and offers reporting, analytics, and next-day settlement. It provides various hardware products, software products, and a developer platform. The company serves the United States, Canada, Japan, Australia, France, Ireland, Spain, and the United Kingdom.
SQ has seen an unusual options activity lately. Around 993 put options were traded on December 9, indicating a bearish sentiment surrounding the stock.
For the fiscal 2022 third quarter ended September 30, 2022, SQ’s total operating expenses increased 45.6% year-over-year to $1.62 billion. Its operating loss came in at $48.79 million, compared to an operating income of $22.99 million in the prior-year period.
In addition, the company’s net loss attributable to common stockholders came in at $14.71 million, compared to a net income attributable to common stockholders of $84,000 in the year-ago period. In addition, its total liabilities were $12.59 billion as of September 30, 2022, compared to $11.71 billion as of December 31, 2021.
SQ’s trailing-12-month gross profit margin of 32.72% is 34.3% lower than the industry average of 4.77%. Also, its trailing-12-month ROCE, ROTC, and ROTA of negative 5.18%, 1.51%, and 1.73% compare to the industry averages of 5.00%, 3.34%, and 1.66%, respectively.
Analysts expect SQ’s EPS and revenue for the fiscal period ending December 31, 2022, to decline 36.8% and 0.9% year-over-year to $1 and $17.50 billion, respectively. The stock has slumped 60.6% year-to-date and 65.4% over the past year to close the last trading session at $64.60.
SQ’s POWR Ratings reflect bleak prospects. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the F-rated Financial Services (Enterprise) industry, it is ranked #84 out of 104 stocks. The company has a D grade for Momentum, Stability, and Quality.
Click here to see the additional POWR Ratings of SQ for Growth, Value, and Sentiment.
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform through two segments: Platform and Player. Its platform enables users to discover and access various streaming content and content publishers to build and monetize large audiences. ROKU’s streaming players and TV-related audio devices are available through direct retail sales and licensing arrangements with service operators.
On December 9, around 5,185 put options for ROKU were traded, indicating bearish sentiment.
For the fiscal 2022 third quarter ended September 30, 2022, ROKU’s gross profit declined 2% year-over-year to $356.79 million. Its operating expenses increased 70.7% from the year-ago value to $503.78 million. Its income from operations came in at $146.99 million, compared to income from operations of $68.85 million in the prior year’s quarter.
The company’s net loss came in at $122.18 million and $0.88 per share, compared to a net income of $68.94 million and $0.48 per share in the year-ago period, respectively.
ROKU’s trailing-12-month gross profit margin of 46.61% is 7.4% lower than the industry average of 50.3%. The stock’s trailing-12-month ROCE, ROTC, and ROTA of negative 8.68%, 4.78%, and 5.40% compare to the industry averages of 6.18%, 4.13%, and 2.30%, respectively.
Analysts expect ROKU’s loss per share for the first quarter of fiscal 2023 (ending March 2023) to widen 449.1% year-over-year to $1.04. The consensus revenue estimate for the same quarter indicates a decline of 2.4% year-over-year to $716.16 million. Also, the consensus loss per share estimate of $4.28 for the next fiscal year (ending December 2023) indicates a worsening of 19.7% year-over-year.
The stock has plunged 44% over the past six months and 77.8% year-to-date to close the last trading session at $51.74.
ROKU’s POWR Ratings are consistent with this bleak outlook. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth and a D for Stability and Sentiment. Within the Consumer Goods industry, it is ranked #55 out of 59 stocks. To see the other ratings of ROKU for Momentum, Value, and Quality, click here.
Lucid Group, Inc. (LCID)
Technology and automotive company LCID develops electric vehicle (EV) technologies. The company builds and markets electric vehicles, EV powertrains, and battery systems. It operates more than 20 retail studios in the United States. The stock has seen unusual options activity lately. On December 9, about 791 put options for LCID were traded, indicating a bearish sentiment.
For the fiscal 2022 third quarter ended September 30, 2022, LCID’s total cost and expenses increased 77.6% year-over-year to $882.98 million. Its loss from operations widened by 38.3% from the previous year’s quarter to $687.52 million. The company’s adjusted EBITDA loss came in at $552.90 million, worsening 125.7% year-over-year.
In addition, the company’s net loss widened by 1.1% year-over-year to $530.10 million, while its net loss per share attributable to common stockholders came in at $0.40. Its non-GAAP free cash outflow was $859.53 million, up 123.6% year-over-year.
LCID’s trailing-12-month gross profit margin of negative 213.72% compares to the industry average of 35.41%. Its trailing-12-month asset turnover ratio of 0.06% is 94.3% lower than the industry average of 1.01%. In addition, its trailing-12-month ROCE and ROTC of negative 46.49% and 27.38% compare to the industry averages of 12.92% and 6.59%, respectively.
Analysts expect LCID’s loss per share to widen 45.6% year-over-year to $0.43 for the current quarter ending December 31, 2022. Also, the consensus loss per share estimate of $1.31 for the next fiscal year indicates a worsening of 10.9% year-over-year. The company has a disappointing earnings surprise history since it missed its consensus EPS estimates in three of the trailing four quarters.
Over the past six months, the stock has declined 54% and 78.8% year-to-date to close the last trading session at $8.68.
LCID’s poor fundamentals are reflected in its POWR Ratings. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
LCID has an F grade for Value, Quality, Stability, and Sentiment. Within the D-rated Auto & Vehicle Manufacturers industry, it is ranked #56 out of 62 stocks.
Click here to see the additional POWR Ratings for Momentum and Growth for LCID.
SQ shares fell $0.60 (-0.93%) in premarket trading Monday. Year-to-date, SQ has declined -60.00%, versus a -16.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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