Last month, Fed Chairman Jerome Powell affirmed at his annual policy speech at Jackson Hole, Wyoming, that the central bank would continue to hike the benchmark interest rates to lower record-high inflation, which might cause “some pain” to the economy. Moreover, with the economic contraction for two consecutive quarters of this year, the odds of a recession are high.
However, investors’ sentiment has improved lately with the belief that inflation has already peaked. The market gained last week by snapping a three-week losing streak as investors remained focused on the predictions of interest rate hikes and inflation. The Consumer Price Index (CPI) for August reflected an 8.3% rise year-over-year and a 0.1% increase month-over-month.
Despite renewed investor interest, stocks with bleak growth prospects and a history of massive losses are expected to continue a downtrend. Hence, given the fundamental weakness, popular stocks NVIDIA Corporation (NVDA), Snap Inc. (SNAP), and Avaya Holdings Corp. (AVYA) could be best avoided now.
NVIDIA Corporation (NVDA)
NVDA is a software company that provides graphics processing units (GPUs), application programming interfaces (APIs), and system-on-chip units (SoCs) in the United States, Taiwan, China, and internationally. The company operates through Graphics and Compute & Networking segments.
In addition, NVDA’s products are used in professional visualization, gaming, data center, and automotive markets. The company sells its products to original equipment manufacturers, original device manufacturers, system builders, independent software vendors, and automotive manufacturers.
NVDA's non-GAAP operating expenses increased 38.2% year-over-year to $1.75 billion in the second quarter of fiscal 2023. The company’s non-GAAP operating income was $1.33 billion, down 56.9% year-over-year. It reported a non-GAAP net income of $1.29 billion, down 50.7% year-over-year.
Furthermore, the company’s non-GAAP earnings per share decreased 51% from the year-ago value to $0.51.
The $0.71 consensus EPS estimate for the fiscal 2023 third quarter (ending October 2022) indicates a 38.9% decline from the same period in 2021. Analysts expect NVDA’s revenue for the ongoing quarter to decline 17.1% year-over-year to $5.89 billion. Also, the company’s EPS for the current fiscal year 2023 (ending January 2023) is expected to come in at $3.39, down 23.7% from the previous year.
The stock has slumped 32% over the past six months and 51.8% year-to-date to close the last trading session at $145.05.
NVDA's POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NVDA has a grade of D for Stability, Growth, and Value. Within the Semiconductor & Wireless Chip industry, it is ranked #79 of 94 stocks. Click here to see NVDA’s POWR Ratings for Quality, Sentiment, and Momentum.
Snap Inc. (SNAP)
SNAP is a leading camera and social media company in North America, Europe, and internationally. The company provides Snapchat, a camera application that enables people to communicate visually through images and short videos. It also offers Spectacles, an eyewear product that connects with Snapchat and captures photos and videos from a human perspective, and advertising products.
Last month, SNAP announced plans to lay off nearly 20% of its more than 6,400 employees. SNAP’s CEO Evan Spiegel said in a statement that the company is restructuring to focus on three strategic priorities: community growth, revenue growth, and augmented reality.
“As a result, we are sunsetting several projects, reducing the size of our team by approximately 20 percent, and announcing the promotion of Jerry Hunter to Chief Operating Officer,” Spiegel added.
In the fiscal 2022 second quarter ended June 30, SNAP’s operating loss widened 108.3% year-over-year to $1.11 billion. Its adjusted EBITDA declined 93.9% from the year-ago value to $7.19 million. The company reported a net loss of $422.07 million, worsening 178.3% year-over-year.
In addition, the company’s non-GAAP net loss per share attributable came in at $0.02, compared to a $0.10 gain in its prior-year quarter. Cash outflow from operating activities amounted to $124.08 million, up 22.8% year-over-year. Its free cash outflow stood at $124.08 million, compared to $101.09 million in the year-ago period.
Analysts expect SNAP’s earnings per share to decline 50.2% year-over-year to $0.11 for the fiscal 2022 fourth quarter (ending December 2022). In addition, the current year's $0.04 consensus EPS estimate represents a 91.4% year-over-year decline. The company has missed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 54.8% over the past six months and 82.3% over the past year to close the last trading session at $12.65.
SNAP's POWR Ratings reflect its poor prospects. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.
SNAP has a grade of F for Stability. It has a D grade for Growth, Momentum, Sentiment, and Quality. Within the F-rated Internet industry, it is ranked #58 of 64 stocks. Click here to see SNAP’s POWR Rating for Value.
Avaya Holdings Corp. (AVYA)
AVYA provides digital communications products, solutions, and services for businesses worldwide. The company operates through two segments: Products & Solutions and Services.
In June, AVYA announced $600 million in financing. The company priced $350 million of new Senior Secured Term Loans and entered into agreements for the private placement of $250 million of Exchangeable Senior Secured Notes, due in 2027. The debt financing is expected to increase the company’s debt and interest burden.
For the fiscal 2022 second quarter ended June 30, 2022, AVYA's revenue decreased 21.2% year-over-year to $577 million, and its non-GAAP gross profit amounted to $220, down 25.2% year-over-year. Its non-GAAP operating income declined 86.3% from the year-ago value to $20 million. Its adjusted EBITDA came in at $54, down 68.8% from the prior-year period.
The company's non-GAAP net loss of $20 million compared with $73 income in the prior-year period. Also, it reported a non-GAAP loss per share of $0.24 compared to $0.75 earnings per share in the same period in 2021.
The consensus revenue estimate of $2.61 billion for the fiscal year 2022, ending September 2022, indicates a 12% year-over-year decline from the last year. The consensus loss per share estimate of $0.44 for the ongoing year represents an 86.1% year-over-year decrease. The company has missed the consensus EPS estimates in three of the trailing four quarters.
The stock has plunged 84.3% over the past six months and 90.6% over the past year to close the last trading session at $1.80. Also, it has lost 91.3% year-to-date.
AVYA’s POWR Ratings reflect this bleak outlook. The stock has an overall grade of D, translating to a Sell in our proprietary rating system. It has an F grade for Sentiment and a D for Quality, Momentum, Stability, and Quality. Within the Technology-Communication/Networking industry, it is ranked #49 of 51 stocks. To see additional POWR Ratings (Value) for AVYA, click here.
NVDA shares were trading at $134.80 per share on Tuesday morning, down $10.25 (-7.07%). Year-to-date, NVDA has declined -54.14%, versus a -15.50% 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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