The stock market benchmarks failed to stage a comeback on Tuesday after President Biden announced that the United States would ban Russian imports of oil and energy, thereby raising concerns about gas prices rising further and inflation worsening. The S&P 500 slid 0.73% to 4,170.62, while the Dow Jones Industrial Average declined 0.57% to 32,631.72. The Nasdaq Composite was down 0.28% to 12,795.55.
Historically, large oil shocks have often preceded recessions because energy price hikes cause a range of things to be more expensive to produce and purchase. Furthermore, analysts have warned that the Russian oil ban could accelerate rising oil and food prices and precipitate a recession. In addition, market volatility is evident, and the CBOE Volatility Index (^VIX) has gained 15.3% over the past five days.
Given this backdrop, we think fundamentally weak stocks Carvana Co. (CVNA), Peloton Interactive, Inc. (PTON), and MicroStrategy Incorporated (MSTR) might be best avoided.
Carvana Co. (CVNA)
CVNA in Phoenix, Ariz., is an e-commerce platform operator that buys and sells used cars in the United States. The company’s platform enables customers to research and identify a vehicle, inspect it, obtain financing, and warranty coverage, and purchase it.
On December 30, law firm Kaskela Law LLC announced that it was investigating CVNA on the grounds of alleged violation of securities laws and breach of fiduciary duties toward shareholders in connection to its corporate actions that might have caused harm to them.
For its fiscal fourth quarter, ended December 31, CVNA’s net sales and operating revenues increased 105.4% year-over-year to $3.75 billion. However, its net loss rose 18.2% from the prior-year quarter to $182 million, while net loss per share of Class A common stock rose 17.2% from the same period in the prior year to $1.02.
The negative $1.19 consensus EPS estimate for the quarter ending March 2022 represents a 158.7% year-over-year decrease.
The stock has declined 56.4% in price over the past year and 54.6% year-to-date to close yesterday’s trading session at $105.20.
CVNA’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
CVNA has an F grade for Stability, Sentiment, and Quality and a D grade for Growth. In the 72-stock Internet industry, it is ranked #70. The industry is rated F.
Click here to see the additional POWR Ratings for CVNA (Value and Momentum).
Peloton Interactive, Inc. (PTON)
PTON in New York City is an interactive fitness products provider that operates in North America and globally. The company’s offerings include connected fitness products with touchscreen for on-demand classes and connected fitness subscriptions for users.
On December 31, The Schall Law Firm, a shareholder rights law firm, reminded investors of a class-action lawsuit against PTON. The complaint alleges that the company made false and misleading statements regarding its inventory levels and maintaining appropriate inventory to meet demand, and its business results after the COVID-19 pandemic. The company is also under investigation by several other law firms.
For its fiscal second quarter, ended December 31, PTON’s total operating expenses increased 92.9% year-over-year to $705.90 million. Its net income decreased 790.9% from the prior-year period to negative $439.40 million, while its net income per share attributable to common stockholders came in at negative $1.39, down 872.2% from the same period the prior year.
The negative $3.92 consensus EPS estimate for its fiscal year 2022 indicates a 1,206.7% year-over-year decrease. And the $3.73 billion consensus revenue estimate for the same year reflects a 7.2% decline from the prior year. Furthermore, PTON has missed consensus EPS estimates in three out of the trailing four quarters.
Over the past year, the stock has declined 77.8% in price and 76.9% over the past six months to close yesterday’s trading session at $22.55.
It is no surprise that PTON has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.
PTON has a Growth, Stability, Sentiment, and Quality grade of F and a Value grade of D. In the 62-stock Consumer Goods industry, it is ranked last. The industry is rated D.
Click here to see the additional POWR Ratings for Momentum for PTON.
MicroStrategy Incorporated (MSTR)
MSTR is an enterprise analytics software and services provider. The Tysons Corner, Va., company’s offerings include MicroStrategy 2021, an enterprise platform that supplies a modern analytics experience. It also offers MicroStrategy Support that helps customers and improves the overall experience.
On January 25, EziBuy, a New Zealand-based multi-channel fashion and homeware retailer’s partnership with MSTR, expanded what’s possible in data-driven retail for the company, thereby propelling it to a market-leading position. However, it might take a while for MSTR to gain significant returns from this venture.
For its fiscal fourth quarter, ended December 31, MSTR’s total cost of revenues increased 15.5% year-over-year to $24 million. Its net income and EPS came in at a negative $89.98 million and a negative $8.43, respectively, down 3,481.3% and 3,222.2% from the prior-year quarter.
The $1.28 consensus EPS estimate for the quarter ending June 30, 2022, indicates a 25.6% year-over-year decrease.
MSTR’s shares have declined 34.3% over the year and 24.6% year-to-date to close yesterday’s trading session at $410.36.
MSTR’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.
MSTR has a Quality grade of F and a Value, Stability, and Sentiment grade of D. It is ranked #149 out of the 163 stocks in the Software – Application industry. The industry is rated F.
In addition to the POWR Rating grades we have stated above, one can see the MSTR rating for Growth and Momentum here.
Click here to check out our Software Industry Report for 2022
CVNA shares were trading at $116.26 per share on Wednesday afternoon, up $11.06 (+10.51%). Year-to-date, CVNA has declined -49.84%, versus a -9.94% 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 Popular Stocks You Shouldn’t Touch With a 10-Foot Pole: Peloton, MicroStrategy, and Carvana StockNews.com
