The Fed’s continued rate hikes and the recent turmoil in the financial system have increased the likelihood of a recession this year. Amid an uncertain macro environment, analysts expect a stormy earnings reporting season. We think that investors should avoid struggling stocks TuSimple Holdings Inc. (TSP), Ra Medical Systems, Inc (RMED), and Agrify Corporation (AGFY), which are expected to release their earnings reports this Wednesday.
The Federal Reserve raised interest rates by a quarter-point, balancing the fight against stubborn inflation with the recent turmoil in the banking sector. The Fed’s move marked the ninth-rate hike and lifted the federal fund rates to a range of 4.75%-5%. Fed officials feel that “some additional policy firming” may be needed and expect the year-end 2023 policy rate at 5.1%.
Investors await the jobs report due this Friday to see whether the labor market softened under the pressure of increasing layoffs last month. According to data from Trading Economics, the economy is expected to add 238,000 jobs in March, and the unemployment rate is set to hold steady at 3.6%.
High inflation, steady interest rate hikes, and growing risks of tighter credit conditions amid several bank failures raise the probability of an economic downturn this year.
Veteran economist David Rosenberg warned that corporate profits are declining. A slump in corporate profits could be a sign of an oncoming economic downturn and weigh on the stock market. “If 2022 was about multiple contraction from nosebleed levels, 2023 is when interest rates percolate through the economy and into corporate earnings,” he said.
Amid a challenging macro environment, it could be potentially volatile this earnings season. TSP, RMED, and AGFY are slated to release earnings reports tomorrow, and in this piece, I have discussed various reasons why investors should avoid these stocks.
TuSimple Holdings Inc. (TSP)
TSP designs autonomous technology specifically designed for semi-trucks in the United States and internationally. The company operates its Autonomous Freight Network (AFN) L4 autonomous semi-trucks equipped with its autonomous driving technology.
On December 22, 2022, TSP announced a restructuring plan which would impact approximately 350 employees or 25% of its workforce. The company plans to actively work with key shipping partners to operationalize its autonomous technology. And to help ensure capital efficiency, it also plans to scale back freight expansion.
Cheng Lu, TSP’s President and CEO said, “I returned to TuSimple as CEO to help address a number of challenges and set the Company up for long-term success. This required evaluating our entire workforce and making tough decisions. It's no secret that the current economic environment is difficult. We must be prudent with our capital and operate as efficiently as possible.”
TSP’s trailing-12-month gross profit margin of negative 98.16% compares to the industry average of 29.29%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of negative 36.24%, 20.44%, and 38.06% compare to the respective industry averages of 13.67%, 6.96%, and 5.16%.
During the third quarter that ended September 30, 2022, TSP’s gross loss widened 63.5% year-over-year to $2.78 million. Its loss from operations worsened by 3.2% from the year-ago value to $119.66 million. Its adjusted EBITDA loss was $93.60 million for the quarter. Also, the company reported a net loss and net loss per share attributable to common shareholders of $113.16 million and $0.50, respectively.
Furthermore, as of September 2022, the company’s cash and cash equivalents were $871.36 million, compared to $1.34 billion as of December 31, 2021. Its total liabilities stood at $111.50 million, compared to $69.35 million as of December 31, 2021.
Analysts expect TSP’s loss per share to widen 12.9% year-over-year to $0.60 for the fourth quarter that ended December 2022. Also, the company’s loss per share for fiscal 2023 is expected to worsen by 16.7% from the previous year to $2.36.
Over the past year, shares of TSP have declined 89% to close the last trading session at $1.40. Also, the stock has plunged 82.4% over the past six months.
TSP’s POWR Ratings reflect this weak outlook. It has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an F grade for Quality and a D for Sentiment, Value, and Stability. It is ranked #19 out of 20 stocks in the D-rated Trucking Freight industry. Click here to see additional ratings of TSP (Momentum and Growth).
Ra Medical Systems, Inc (RMED)
RMED is a medical device company. It owns an advanced excimer laser-based platform for treating vascular immune-mediated inflammatory diseases. The company also develops electrophysiology products to provide patients, physicians, and hospitals with technologies to improve patients' lives with cardiac arrhythmias.
RMED’s trailing-12-month ROCE, ROCE, and ROTA of negative 158.51%, 74.55%, and 154.50% compare to the industry averages of negative 40.21%, 21.80%, and 31.63%, respectively. In addition, the stock’s trailing-12-month asset turnover ratio is 99.8% lower than the 0.35x industry average.
For the third quarter that ended September 30, 2022, RMED reported an operating loss of $4.78 million. Its loss from continuing operations came in at $4.76 million. The company’s net loss widened 10.8% year-over-year to $4.76 million, while its net loss per share was $4.36 for the third quarter.
In addition, as of September 30, 2022, its cash and cash equivalents were $13.66 million, compared to $15.05 million as of December 31, 2022.
The consensus revenue estimate of $14,000 for the fiscal year 2022 indicates a 36.4% decline year-over-year. Moreover, RMED missed the consensus EPS estimates in three of the trailing four quarters, which is disappointing. The stock has declined 36.1% over the past month and 76.5% over the past six months to close the last trading session at $1.56.
RMED’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system.
RMED has an F grade for Stability and Quality. It also has a D for Value and Momentum. The stock is ranked #133 out of 140 stocks in the D-rated Medical-Devices & Equipment industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the RMED’s ratings for Sentiment and Growth here.
Agrify Corporation (AGFY)
AGFY develops precision hardware and software cultivation and extraction solutions for the cannabis and hemp industry. It provides vertical farming units and Agrify Insights Software-as-a-Service software; integrated grow racks and LED grow lights; and non-proprietary products manufactured by third parties, including air cleaning systems and pesticide-free surface protection products.
On November 9, 2022, AGFY adjusted its fiscal year 2022 outlook as industry-wide challenges and a tough macro environment continue to challenge the business. Also, the pending lawsuit from Bud & Mary’s, which resulted in an unanticipated deferral of nearly $5.30 million in third-quarter revenue, is expected to impact fourth-quarter revenue.
The company expects to generate total revenue between $65 million and $70 million for the full-year 2022 instead of the prior guidance range of $70 million to $75 million.
AGFY’s trailing-12-month gross profit margin of 9.39% is 67.9% lower than the industry average of 29.29%. Also, the stock’s trailing-12-month EBITDA and net income margins of 82% and 208.4% are significantly lower than the industry averages of 9.72% and 6.49%, respectively.
AGFY’s revenues decreased 55.4% year-over-year to $7 million in the third quarter that ended September 30, 2022. Its gross loss for the third quarter totaled $4.10 million, compared to $380,000 in the prior-year period. Its operating expenses increased 191.5% from the year-ago value to $27.40 million. The company’s adjusted EBITDA loss was $28.80 million.
Additionally, the company’s net loss and net loss per share widened by 372.4% and 270.3% year-over-year to $46.30 million and $17.33, respectively. Cash flow used in operating activities was $8.50 million, compared to $3.70 million in the same quarter in 2021.
Analysts expect AGFY’s revenue to decline 56.2% year-over-year to $11.07 million for the fourth quarter that ended December 2022. The company is expected to report a loss per share of $1.31 for the same period. In addition, it failed to surpass the consensus EPS estimates in each of the trailing four quarters.
Furthermore, analysts expect AGFY to report a loss per share of $2.22 for the fiscal year 2024. The stock has slumped 58.2% over the past month and 99.6% over the past year to close the last trading session at $0.16.
AGFY’s bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of D, translating to Sell in our proprietary rating system.
AGFY has an F grade for Stability and Sentiment and a D for Quality. Within the F-rated Biotech industry, the stock is ranked #332 of 401 stocks. To see additional POWR Ratings of AGFY for Growth, Value, and Momentum, click here.
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TSP shares were unchanged in premarket trading Tuesday. Year-to-date, TSP has declined -14.63%, versus a 8.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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