The stock market went through significant uncertainty last year primarily due to high inflation and the Fed’s aggressive interest rate hikes. Although optimism over slowing inflation helped the stock market recover last month and the short-squeeze stocks GameStop Corp. (GME), Carvana Co. (CVNA), and Bed Bath & Beyond Inc. (BBBY) witness some fresh investor attention, I don’t see them surviving the potential uncertainty ahead.
The factors potentially keeping the market under pressure primarily include renewed inflation concerns following a sequential increase in inflation last month and the hotter-than-expected jobs report.
Earlier this month, the Federal Reserve announced a quarter of a percentage point rate increase, its smallest hike since the beginning of the tightening cycle in March 2022, bringing the fed funds rate to a target range of 4.5% to 4.75%.
Although inflation has slowed from its peak, Fed officials might be compelled to return to aggressive interest rate hikes with the reversal of the CPI trend amid a robust market, which has the potential to push wages higher.
Minutes from the meeting showed that any upside risk to inflation would remain a key factor for participants in shaping the policy outlook. The officials believed that interest rates would need to move higher and stay elevated until inflation was on a path to 2%.
Since the renewed recession fears could be major trouble for the market in the months ahead, fundamentally weak short-squeeze stocks GME, CVNA, and BBBY might find it difficult to be in the game.
Let’s discuss what could shape the prospects of these stocks in the months ahead:
GameStop Corp. (GME)
GME leverages its e-commerce properties and stores to offer games, entertainment products, and technology. The company operates through four geographical segments: United States; Canada; Australia; and Europe.
GME’s trailing-12-month Return on Common Equity is negative compared to the 12.06% industry average. Likewise, its trailing-12-month Return on Total Assets is negative compared to the 4.13% industry average. Furthermore, the stock’s 21% trailing-12-month Gross Profit Margin is 40.5% lower than the industry average of 35.30%.
GME’s net sales declined 8.5% year-over-year to $1.19 billion for the fourth quarter ended October 29, 2022. The company’s gross profit decreased 8.5% from the prior-year period to $291.60 million. Its adjusted net loss narrowed 11.4% year-over-year to $93.40 million. Also, its adjusted loss per share came in at $0.31, narrowing 11.4% year-over-year.
Analysts expect GME’s EPS for the fourth quarter ended January 2023, to remain negative. Its revenue for the quarter ended January 2023 is expected to decline 3.3% year-over-year to $2.18 billion. It failed to surpass the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has declined 40% to close the last trading session at $20.14.
GME’s weak fundamentals 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 different factors, with each factor weighted to an optimal degree.
It is ranked #44 out of 45 stocks within the Specialty Retailers industry. GME has an F grade for Value and a D for Momentum, Stability, and Sentiment. To see the other ratings of GME for Growth and Quality, click here.
Carvana Co. (CVNA)
CVNA is an e-commerce platform for buying used cars. Through the company’s platform, consumers can research and identify a vehicle, inspect it using its 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up, all from their desktop or cell phone.
CVNA’s trailing-12-month Return on Common Equity is negative compared to the 12.06% industry average. Likewise, its trailing-12-month EBIT margin is negative compared to the 7.91% industry average. Furthermore, the stock’s 10.81% trailing-12-month Gross Profit Margin is 69.4% lower than the industry average of 35.30%.
For the fourth quarter ended December 31, 2022, CVNA’s net sales and operating revenues declined 24.4% year-over-year to $2.84 billion. The company’s non-GAAP gross profit decreased 55.6% from the prior-year period to $232 million. Its adjusted EBITDA loss widened 449.1% year-over-year to $291 million. Also, its net loss attributable to CVNA widened 805.6% year-over-year to $806 million.
For the quarter ending March 31, 2023, CVNA’s EPS is expected to remain negative. Its revenue for March 31, 2023, is expected to decline 18.8% year-over-year to $3.05 billion. It failed to surpass the consensus EPS estimate in each of the trailing four quarters. Over the past year, the stock has declined 91.1% to close the last trading session at $10.08.
CVNA’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Growth, Stability, Sentiment, and Quality. Within the F-rated Internet industry, it is ranked last out of 61 stocks. To see CVNA’s ratings for Value and Momentum, click here.
Bed Bath & Beyond Inc. (BBBY)
BBBY operates a retail store chain. The company sells domestic merchandise, bath items, kitchen textiles, and home furnishings. It sells its offering through various websites and applications.
BBBY’s trailing-12-month Return on Total Capital is negative compared to the 6.38% industry average. Likewise, its trailing-12-month EBITDA margin is negative compared to the 11.11% industry average. Furthermore, the stock’s trailing-12-month net income margin is negative compared to the industry average of 4.78%.
BBBY’s net sales declined 33% year-over-year to $1.26 billion for the third quarter ended November 26, 2022. Its adjusted gross profit decreased 57.4% year-over-year to $287.42 million. The company’s adjusted net loss widened significantly from the prior-year period to $331.23 million. In addition, its adjusted loss per share widened significantly to $3.65.
Analysts expect BBBY’s EPS for the quarter ending February 2023 to remain negative. Its revenue for the quarter ending February 2023 is expected to decline 32.3% year-over-year to $1.39 billion. It failed to surpass Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 88.6% to close the trading session at $1.50.
BBBY’s weak prospects are reflected in its POWR Ratings. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Quality. It is ranked #58 out of 59 stocks in the Home Improvement & Goods industry. Click here to see the other ratings of BBBY for Growth, Value, and Momentum.
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GME shares were trading at $19.86 per share on Friday morning, down $0.28 (-1.39%). Year-to-date, GME has gained 7.58%, versus a 3.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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