The stubbornly high inflation is prompting the Fed to continue with its aggressive rate hikes. And the persistent monetary policy tightening is expected to eventually push the economy into a recession.
IMF spokesman Gerry Rice expects major economies, including the United States, to slip into recession by 2023. Therefore, corporate financials are expected to remain under pressure. Goldman Sachs analysts expect the S&P 500’s net profit margin to fall 25 bps in 2023.
Furthermore, according to Charles Schwab analysts, “Many leading indicators of economic activity have started to decelerate, making a soft landing increasingly unlikely.”
Therefore, it could be wise to steer clear of fundamentally weak stocks Roblox Corporation (RBLX) and Affirm Holdings, Inc. (AFRM).
Roblox Corporation (RBLX)
RBLX develops and operates an online entertainment platform. The company offers Roblox Studio, Roblox Client, Roblox Education, and Roblox Cloud. It serves customers in the United States, the United Kingdom, Canada, Europe, China, the Asia-Pacific, and internationally.
RBLX’s revenue came in at $591.21 million for the second quarter ended June 30, 2022, up 30.2% year-over-year. However, its loss from operations came in at $170.27 million, up 19.1% year-over-year. Also, its net loss came in at $176.44 million, up 25.9% year-over-year. Moreover, its adjusted EBITDA came in at $54.64 million, down 69.7% year-over-year.
RBLX’s forward EV/S of 8.03x is 308.5% higher than the industry average of 1.97x. Its forward P/S of 8.11x is 549.1% higher than the industry average of 1.25x.
RBLX’s EPS is expected to decline 17.5% year-over-year to negative $1.14 in 2022. Its EPS is estimated to remain negative in 2023. It missed EPS estimates in three of the four trailing quarters. Over the past month, the stock has lost 13.1% to close the last trading session at $37.11.
RBLX’s POWR Ratings reflect its poor prospects. It has an overall grade of F, which indicates a Strong Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Stability and a D grade for Growth, Value, Momentum, and Sentiment. Click here to access the additional POWR Ratings for RBLX (Quality). RBLX is ranked last among 22 stocks in the Entertainment - Toys & Video Games industry.
Affirm Holdings, Inc. (AFRM)
AFRM operates a platform for digital and mobile-first commerce in the United States, Canada, and internationally. The company’s platform includes point-of-sale payment solutions for consumers, merchant commerce solutions, and a consumer-focused app.
AFRM’s net total revenue came in at $1.35 billion for the year ended June 30, 2022, up 55% year-over-year. However, its comprehensive loss came in at $721.34 million, up 66.2% year-over-year. Its operating loss came in at $866.05 million, up 125.7% year-over-year.
AFRM’s forward EV/S of 5.29x is 103.1% higher than the industry average of 2.60x, while its forward P/S of 3.84x is 52.2% higher than the industry average of 2.52x.
AFRM’s EPS is expected to fall 15.9% year-over-year to negative $2.91 in 2023. Its EPS is estimated to remain negative in 2024. In addition, it missed EPS estimates in three of the four trailing quarters. Over the past month, the stock has lost 26.6% to close the last trading session at $22.70.
AFRM’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F grade, equating to a Strong Sell in our proprietary rating system. Also, it has an F grade for Stability and Sentiment and a D for Value and Quality.
Click here to access the AFRM ratings for Growth and Momentum. It is ranked #78 out of 81 stocks in the D-rated Technology – Services industry.
RBLX shares were trading at $36.87 per share on Tuesday afternoon, down $0.24 (-0.65%). Year-to-date, RBLX has declined -64.26%, versus a -18.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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