Amid the increasing concerns about a recession this year and a sluggish economy, I think it is best to steer clear of fundamentally weak stocks Desktop Metal, Inc. (DM), Customers Bancorp, Inc. (CUBI), and Conn’s, Inc. (CONN) with bearish analysts sentiment.
Atlanta Federal Reserve President Raphael Bostic stated on Tuesday that the central bank would approve one more interest rate rise before pausing to assess the impact of policy tightening on the economy.
According to a survey of investors by JPMorgan, almost 90% of respondents see a recession materializing by the first quarter of 2024.
“We do not see inflation providing the Fed an option for easing before a recession takes hold, and we maintain a risk bias toward a recession that starts later, with higher terminal rates across [developed markets] and a more synchronized global downturn,” said the note, which published takeaways from JPMorgan’s Investor Seminar.
This month, consumer sentiment remained largely constant, rising by less than two index points from March. Sentiment is now around 3% lower than a year ago but 27% higher from the all-time low set in June of last year. In April, consumers perceived no significant changes in the economic climate.
Let’s discuss the stocks mentioned above in detail.
Desktop Metal, Inc. (DM)
DM manufactures and sells additive manufacturing solutions for engineers, designers, and manufacturers in the Americas, Europe, the Middle East, Africa, and Asia-Pacific.
Its forward EV/Sales multiple of 2.77 is 70.8% higher than the 1.62 industry average. In terms of its forward Price/Sales, DM is trading at 2.97x, which is 124.6% higher than the industry average of 1.32x.
DM’s trailing-12-month ROTC of negative 13.74% is lower than the 7.05% industry average. Its trailing-12-month EBIT margin of negative 101.61% is lower than the 9.69% industry average.
DM’s total operating expenses for the year that ended December 31, 2022, increased 239.9% year-over-year to $746.83 million. Its loss from operations increased 263.2% from the year-ago value to $731.76 million.
The company’s net loss amounted to $740.34 million and $2.35 loss per share, up 208% and 155.4% year-over-year, respectively.
Analysts expect DM’s revenue to decrease 2.9% year-over-year to $55.99 million for the second quarter ending June 2023. Its EPS is expected to remain negative to $0.05 for the same quarter. It has missed EPS estimates in three of four trailing quarter. DM’s shares have lost 47.8% over the past year to close the last trading session at $2.09.
DM’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
DM has an F grade for Stability, Sentiment, and Quality and a D grade for Value. Within the F- rated Technology - 3D Printing industry, it is ranked last among six stocks. Click here for the additional POWR Ratings for Growth and Momentum for DM.
Customers Bancorp, Inc. (CUBI)
CUBI functions as the bank holding company for Customers Bank that offers financial products and services to individual consumers and small and middle-market businesses. The Wyomissing, Pa., company offers deposit products, including checking, savings, MMDA, and other deposit accounts.
CUBI’s trailing-12-month ROTA of 1.09% is 5.1% lower than the 1.15% industry average.
CUBI’s net income decreased 74% year-over-year to $25.62 million in the fiscal fourth quarter that ended December 31, 2022. Also, its EPS came in at $0.77, down 73.9% year-over-year. Also, its total liabilities came in at $19.49 billion for the period that ended December 31, 2022, compared to $18.21 billion for the period ended December 31, 2021.
Street expects CUBI’s revenue to decrease 5.1% year-over-year to $593.13 million in 2023. Its EPS is expected to decrease 33.4% year-over-year to $5.08 in 2024. It has missed the EPS estimates in three of the trailing four quarters. Over the past year, the stock has lost 59.3% to close the last trading session at $19.25.
CUBI’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which translates to a Sell in our proprietary rating system.
CUBI has an F grade for Sentiment and a D for Growth and Stability. It is ranked #45 out of 67 stocks in the F-rated Northeast Regional Banks industry. For additional POWR Rating for Value, Momentum, and Quality for CUBI, click here.
Conn’s, Inc. (CONN)
CONN operates as a specialty retailer of durable consumer goods and related services in the United States. It operates through two segments, Retail and Credit.
CONN’s forward EV/EBITDA multiple of 111.75 is significantly higher than the industry average of 9.42.
CONN’s trailing-12-month gross profit margin of 25.35% is 28% lower than the industry average of 35.23%. Its trailing-12-month ROTA of negative 10.61% is lower than the industry average of 11.79%.
For the fiscal fourth quarter ended December 31, 2022, CONN’s total revenues decreased 16.8% year-over-year to $334.88 million. Its net loss came in at $42.81 million, compared to a net income of $7.56 million in the prior year. Also, its net loss per share amounted to $1.79, compared to EPS of $0.26 in the same quarter.
CONN’s revenue is expected to decrease 12.1% year-over-year to $298.77 million for the first quarter ending April 2023. Its EPS to remain negative $1.33 for the same period. It has missed EPS estimates in three of trailing quarters. Over the past year, the stock has lost 70% to close the last trading session at $4.97.
It’s no surprise that CONN has an overall D rating, equating to a Sell in our POWR Ratings system. It has an F grade for Growth and Sentiment and a D for Momentum and Stability. It is ranked #38 out of 44 stocks in the Specialty Retailers industry.
Beyond what is stated above, we’ve also rated CONN for Value and Quality. Get all CONN ratings here.
What To Do Next?
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DM shares fell $0.07 (-3.35%) in premarket trading Friday. Year-to-date, DM has gained 53.68%, versus a 8.11% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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