With the Fed continuously raising interest rates to control surging inflation, markets have witnessed significant volatility. A resilient job market strengthens the case for further aggressive interest rate hikes.
"Bond King" Jeffrey Gundlach has forecasted a 20% drop in stocks due to the increased likelihood of the Fed triggering deflation, while Scott Minerd has predicted a sell-off as early as mid-October as a recession becomes more likely.
Additionally, JPMorgan analysts cautioned in a note on Tuesday that the S&P 500 might decline by as much as 5% if the upcoming September Consumer Price Index (CPI) data exceeds the 8.3% reading from the previous month.
Given this backdrop, fundamentally weak stocks Block Inc. (SQ), Marathon Digital Holdings Inc. (MARA), and Riot Blockchain Inc. (RIOT) are best avoided now.
Block Inc. (SQ)
SQ and its subsidiaries develop solutions that enable retailers to take card payments, report and analytics, and next-day settlement. It operates in the United States, Canada, Japan, Australia, Ireland, France, Spain, and the United Kingdom.
During the second quarter ended June 30, 2022, SQ’s total revenue increased 6% year-over-year to $4.40 billion. Its operating loss came in at $213.77 million, compared to an operating income of $124.99 million in the prior-year quarter.
The company reported a net loss of $208.01 million, compared to a net income of $204.02 million in the second quarter of 2021. Its loss per share amounted to $0.36, compared to an EPS of 0.40 in the same period last year.
Analysts expect SQ’s EPS to decline 47.4% in fiscal 2022 and 35.1% in the current quarter ending September 2022. The stock has declined 76.9% over the past year and 66.9% year-to-date.
SQ's POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which translates 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.
SQ has been graded a D for Stability, Sentiment, and Quality. Within the F-rated Financial Services (Enterprise) industry, it is ranked #89 of 103 stocks.
To see additional POWR Ratings for Growth, Value, and Momentum for SQ, click here.
Marathon Digital Holdings Inc. (MARA)
MARA is a digital asset technology company that mines cryptocurrencies in the United States with a focus on the blockchain ecosystem and the generation of digital assets. It possessed roughly 8,115 bitcoins as of December 31, 2021, which includes the 4,794 bitcoins held in the investment fund.
On July 28, MARA refinanced its existing $100 million revolving line of credit and added an additional $100 million term loan with Silvergate Bank, the premier provider of innovative financial infrastructure solutions to the digital currency industry. The company also announced a refinancing of its $100 million revolving line of credit, which was set to expire in October 2022.
MARA’s revenue decreased 15% year-over-year to $24.92 million for the second quarter ended June 30, 2022. Its operating loss increased 61.6% from the year-ago value to $178.21 million. Its net loss surged 76% from the prior-year quarter to $191.45 million. Its loss per share grew 60.6% year-over-year to $1.75.
Its EPS is expected to decline 594% in the current year and 86.4% in the current quarter ending September 2022. The stock has declined 75.7% over the past year and 26.1% over the past month.
MARA's weak fundamentals are reflected in its POWR ratings. The stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The stock has an F grade for Stability, Value, and Quality. It operates in the F-rated Financial Services (Enterprises) industry.
In addition to the POWR Ratings grades I have just highlighted, you can see MARA ratings for Momentum, Growth, and Sentiment here.
Riot Blockchain Inc. (RIOT)
RIOT and its subsidiaries are primarily involved in bitcoin mining operations in North America. It engages in Bitcoin Mining, Data Center Hosting, and Electrical Products and Engineering segments. It employed roughly 30,907 miners as of December 31, 2021.
RIOT's total revenue increased 112% year-over-year to $72.9 million for the second quarter ended June 30, 2022. However, its selling general and administrative expenses grew 205.7% from the prior-year quarter to $10.7 million.
The company reported a net loss of $366.3 million, compared to a net income of $19.3 million in the prior-year quarter. Its loss per share amounted to $2.81, compared to an EPS of $0.22 in the second quarter of 2021.
Street expects its EPS to decline 3012.5% in the current year. The stock has declined 77.6% over the past year and 25.1% over the past month.
RIOT’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
It also has an F grade for Quality, Stability, and Sentiment. RIOT is ranked #77 of the 78 stocks in the D-rated Technology -Services industry.
Click here to see the additional POWR Ratings for RIOT. (Momentum, Value, and Growth).
SQ shares were trading at $55.68 per share on Wednesday afternoon, up $2.23 (+4.17%). Year-to-date, SQ has declined -65.53%, versus a -23.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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