The number of Americans filing new claims for unemployment benefits rose less than expected last week, indicating a still-tight labor market. Moreover, claims fell moderately between November and December survey weeks, which suggests another month of solid employment gains, despite the widespread layoffs in the economy.
A strong labor market raises the prospect of more rate hikes ahead, raising the odds of a recession. According to the latest Bloomberg monthly survey of economists, the probability of an economic downturn next year stands at 70%, up from 65% in November and more than double what was estimated six months ago.
On top of it, the Fed’s prolonged interest rate hiking cycle has also weighed heavily on equities this year, with the benchmark S&P 500 on track for a 19.8% annual drop, which would be its biggest since the 2008 financial crisis. Moreover, amid the weakening outlook, investors expect this year’s stock market nightmare to worsen in 2023.
Given this backdrop, fundamentally weak stocks Coinbase Global, Inc. (COIN), Equinox Gold Corp. (EQX), Tellurian Inc. (TELL), ContextLogic Inc. (WISH), and Rent the Runway, Inc. (RENT) might be best avoided now.
Coinbase Global, Inc. (COIN)
COIN provides financial infrastructure and technology for the crypto economy worldwide. The company offers the primary financial account in the crypto economy for retailers; and technology and services that enable ecosystem partners to build crypto-based applications and securely accept crypto assets as payment.
In terms of trailing-12-month EV/EBITDA, COIN is currently trading at 64.76x, which is 430% higher than the 12.22x industry average. Its forward Price/Book ratio of 1.45 is 18.6% higher than the industry average of 1.23.
COIN’s total revenue declined 55% year-over-year to $590.34 million for the third quarter that ended September 30, 2022. Moreover, its net loss came in at $544.64 million, compared to a net income of $405.34 million in the year-ago quarter, while its loss per share came in at $2.43, compared to an EPS of $1.62 in the year-ago quarter.
The consensus EPS estimate of negative $1.04 for the fiscal first quarter ending March 2023 represents a whopping 803.9% decline year-over-year. The consensus revenue estimate of $700.77 million for the same quarter represents a 39.9% decrease from last year. COIN has failed to beat three of its quarterly revenue estimates in the trailing four quarters.
The stock has lost 86.4% over the past year to close the last trading session at $34.59.
COIN’s POWR Ratings reflect this grim outlook. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an F grade for Growth, Stability, and Sentiment and a D for Value, Momentum, and Quality. The stock is ranked last among the 138 stocks in the D-rated Software – Application industry. Get additional COIN details here.
Equinox Gold Corp. (EQX)
Headquartered in Vancouver, Canada, EQX engages in the operation, acquisition, exploration, and development of mineral properties. The company primarily explores for gold and silver deposits.
The stock’s 1.72x forward EV/Sales is 19.2% higher than the industry average of 1.44. Its trailing-12-month EV/EBIT multiple of 20.24x is 92.4% higher than the industry average of 10.52x.
EQX’s revenue remained flat at $245.10 million year-over-year for the third quarter, ended September 30, 2022. The company’s income from operations declined 158.3% year-over-year to negative $12.60 million. In addition, its net loss rose 271.6% from the prior-year quarter to $30.10 million, while its net loss per share grew 233.3% year-over-year to $0.10.
Its EPS will likely be negative $0.21 in the current fiscal year ending December 2022. Similarly, its revenue is expected to decline 12.3% year-over-year to $949.29 million in the current year. EQS has missed its consensus revenue estimates in three of the trailing four quarters.
The stock has declined 47.9% year-to-date, closing its last trading session at $3.52.
It’s no surprise that EQX has an overall F rating, which equates to a Strong Sell in our POWR Ratings system.
The stock has an F grade for Growth and a D grade for Stability, Sentiment, and Quality. It is ranked last in the D-rated Miners-Gold industry.
Click here to see EQX’s additional POWR ratings for Value and Momentum.
Tellurian Inc. (TELL)
TELL operates as a global low-cost natural gas business. The company develops a portfolio of natural gas production, liquefied natural gas (LNG) marketing, and infrastructure assets.
On September 19, TELL announced the withdrawal of its proposed public offering of 11.25% senior secured notes due 2027 and warrants to purchase shares of its common stock due to uncertain conditions in the high-yield market. These bonds were meant to fund the initial construction of its proposed multi-billion-dollar Driftwood LNG plants in Louisiana.
In the same month, TELL scrapped energy deals with Shell plc (SHEL) and Vitol SA after withdrawing the high-yield bond sale that would have funded the initial construction of its proposed multi-billion-dollar Driftwood LNG plants in Louisiana. TELL would have sold 3 million tonnes per annum of LNG each to Shell and Vitol for ten years from its 27.6-mtpa Driftwood plants as part of the separate deals signed in 2021.
In terms of forward Price/Cash flow, the stock is currently trading at 44.75x, 982.7% higher than the 4.13x industry average. Its forward Price/Sales multiple of 2.61 is 99.4% higher than the 1.31 industry average.
TELL reported a net loss of $14.23 million and $0.03 per share in the fiscal third quarter ending September 30, 2022. For the nine months ended September 30, its net cash used in operating activities increased 67.8% year-over-year to $65.72 million, and its net cash used in investing activities grew significantly from the prior-year quarter to $386.13 million.
Street expects TELL’s revenue to decline 10.8% year-over-year to $131.06 million in the fiscal first quarter ending March 2023. The company is expected to report a loss per share of $0.02 during the same quarter.
The stock has slumped 42.4% over the past year to close the last trading session at $1.79.
TELL’s bleak outlook is also reflected in its overall F rating, which translates to a Strong Sell.
It is also rated F for Sentiment, Quality, Stability, and Value. TELL is ranked last among 93 stocks in the Energy – Oil & Gas industry.
Beyond what we’ve stated above, we have also given TELL grades for Growth and Momentum. Get all TELL ratings here.
ContextLogic Inc. (WISH)
WISH is a mobile electronic commerce company. The company provides a discovery-based shopping platform that connects merchants’ products to users based on user preferences. Its personalized product feed enables the users to discover products to purchase by scrolling through its mobile application and browsing.
In the fiscal third quarter ended September 30, 2022, WISH’s revenue declined 66% year-over-year to $125 million, while its gross profit decreased 79.6% year-over-year to $34 million. Its net loss increased 93.7% year-over-year to $124 million, and its loss per share rose 80% year-over-year to $0.18.
For the current fiscal year ending December 2022, WISH’s loss per share is expected to grow 38.9% year-over-year to $0.45. Its revenue for the current year is expected to decline 71.6% year-over-year to $592.71 million. The stock has failed to surpass its revenue estimates in all four trailing quarters.
WISH’ shares have declined 86.3% over the past year to close the last trading session at $0.48.
WISH’s weak fundamentals are reflected in its POWR Ratings. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
It has an F grade for Stability and a D for Growth and Quality. Within the F-rated Internet industry, it is ranked #54 out of 58 stocks.
To see the other ratings of WISH for Value, Momentum, and Sentiment, click here.
Rent the Runway, Inc. (RENT)
RENT lends designer wear for women through its stores and online retail. It also engages in software development and support activities.
Its forward EV/EBITDA multiple of 111x is significantly higher than the industry average of 8.91x.
RENT’s operating loss amounted to $27 million in the fiscal third quarter ended October 31, 2022. Its total costs and expenses rose 1.2% year-over-year to $104.4 million. The company’s net loss and net loss per share came in at $36.10 million and $0.56, respectively.
Analysts expect RENT’s EPS to be negative $0.51 for the fiscal fourth quarter ended January 2023.
It has declined 17.4% over the past year to close its last trading session at $2.72.
As expected, RENT has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system.
The stock has an F grade for Quality and a D for Value, Stability, and Sentiment. It is ranked last among 46 stocks in the Specialty Retailers industry.
In addition to the POWR Ratings grades just highlighted, you can see the RENT ratings for Growth and Momentum here.
COIN shares were trading at $35.35 per share on Friday afternoon, up $0.76 (+2.20%). Year-to-date, COIN has declined -85.99%, versus a -18.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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