After enduring a painful year in 2022, the stock market and investors have regained optimism over a series of recent positive economic data. The inflation rate fell again in December to 6.5% on an annual basis, the lowest reading since October 2021.
Despite cooling inflation, the Federal Reserve delivered its eighth consecutive interest-rate hike this week. It hiked the benchmark’s key rate by 25 basis points, bringing it to the 4.5%–4.75% range.
While Fed Chair Jerome Powell acknowledged that the economy’s disinflationary process had started, he added that it’s ‘premature to declare victory’ against inflation. According to senior investment strategist Charlie Ripley, the fed meeting leaned ‘slightly dovish.’
However, with a pause in interest rates debatable this year, the economy and the stock market are expected to remain under pressure. Moreover, with the tech and manufacturing sectors already feeling the pinch of the impending recession, US bankers expect a downturn in the second half of 2023.
According to strategists at JPMorgan, "A weak trajectory for US domestic demand keeps recession risk elevated, even as the tightness in labor markets postpones this recession risk."
Amid this backdrop, market volatility continues to remain a concern for investors. Therefore, it might be wise to steer clear of fundamentally weak stocks Uber Technologies, Inc. (UBER), Snap Inc. (SNAP), and Peloton Interactive, Inc. (PTON) due to their bleak growth prospects.
Uber Technologies, Inc. (UBER)
UBER develops and operates proprietary technology applications through Mobility, Delivery, and Freight segments. The company enables consumers to connect with independent ride service providers for ridesharing services and restaurants and food delivery service providers for meal preparation and delivery services.
For the fiscal third quarter that ended September 30, 2022, UBER’s total cost and expenses increased 63.2% year-over-year to $8.84 billion. The company’s net loss and net loss per share came in at $1.21 billion and $0.61, respectively. Its total liabilities increased by 1.2% to $23.71 billion for the period that ended September 30, 2022, compared to $23.43 billion for the fiscal year that ended December 31, 2021.
In terms of forward EV/Sales and EV/EBITDA, UBER is trading at 2.24x and 42.70x, 22.9% and 271.6% higher than the industry averages of 1.82x and 11.49x, respectively. Also, its forward Price/Cash Flow multiple of 50.35 compares to the industry average of 13.96.
Analysts expect UBER’s EPS to remain negative in the fiscal years 2022 and 2023. It failed to surpass Street EPS estimates in three of the trailing four quarters. The stock has declined 11.1% over the past year to close the last trading session at $33.05.
UBER's POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
UBER has a D grade for Value and Stability. Within the Technology - Services industry, it is ranked #56 of 78 stocks. To see the other ratings of UBER for Growth, Momentum, Sentiment, and Quality, click here.
Snap Inc. (SNAP)
SNAP is a camera company offering an application known as Snapchat that connects people worldwide through short videos and images. Its advertising products include Snap Ads and augmented reality (AR) Ads.
During the fourth quarter, which ended December 31, 2022, SNAP’s operating loss widened significantly year-over-year to $287.60 million. Its net loss amounted to $288.46 million versus a net income of $22.55 million, while its adjusted EBITDA decreased 28.6% year-over-year to $233.28 million. Also, its non-GAAP net income per share came in at $0.14, down 36.4% from the prior-year period.
In terms of forward non-GAAP P/E, SNAP is trading at 48.34x, 186.6% higher than the industry average of 16.87x. The stock’s forward EV/EBITDA multiple of 37.99 is 315.9% higher than the industry average of 9.13. Also, its forward Price/Book multiple of 6.71 compares to the industry average of 2.26.
The consensus revenue estimate of $1.01 billion for the current quarter (ending March 31, 2023) indicates a 4.8% decline year-over-year. The company missed the revenue estimates in each of the trailing four quarters. Over the past year, the shares of SNAP have declined 64.5% to close the last trading session at $11.40.
SNAP’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to Sell in our proprietary rating system.
It has an F grade for Sentiment and a D for Growth, Momentum, and Stability. It is ranked #51 out of 61 stocks in the F-rated Internet industry. Click here to see additional ratings of SNAP (Value and Quality).
Peloton Interactive, Inc. (PTON)
PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
PTON’s total revenue decreased 30.1% year-over-year to $792.70 million for the second quarter that ended December 31, 2022. Its gross profit fell 16.4% from the prior-year quarter to $235 million. The company’s net loss and net loss per share came in at $335.40 million and $0.98, respectively. In addition, its adjusted EBITDA loss came in at $122.40 million.
In terms of forward EV/Sales, PTON is trading at 2.70x, 113.7% higher than the industry average of 1.26x. Likewise, its forward Price/Sales multiple of 2.14 is 114.3% higher than the industry average of 1.00. The stock’s trailing-12-month Price/Book multiple of 190.36 compares to the industry average of 2.40.
Street expects PTON’s revenue to decline 26.2% year-over-year to $711.83 million for the third quarter (ending March 31, 2023). Its EPS is expected to remain negative in the fiscal years 2023 and 2024.
Over the past year, the stock has declined 36.4% to close the last trading session at $16.94.
PTON’s POWR Ratings reflect this weak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and Sentiment and a D for Value and Quality. Among the 59 stocks in the Consumer Goods industry, it is ranked #57. To see additional ratings of PTON (Growth and Momentum), click here.
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UBER shares were trading at $33.63 per share on Friday afternoon, up $0.58 (+1.75%). Year-to-date, UBER has gained 35.99%, versus a 8.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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