Although the Fed’s interest rate hikes could stall after the May FOMC meeting, the ripple effect of the sky-high inflation and banking sector jitters might be felt in the upcoming months.
Given the current clouds of market volatilities, unlikely to iron out anytime soon, let’s discuss why Norwegian Cruise Line Holdings Ltd. (NCLH), First Majestic Silver Corp. (AG), and Desktop Metal, Inc. (DM), with stretched valuations, might be avoided now.
The stubbornly high inflation to ease to 5% in March 2023 was attributed to the Fed’s persistent rate hikes efforts. Since inflation remains well above the central bank’s target rate of 2%, a quarter-percentage-point rate hike is anticipated.
In addition to the increased interest rates, the banking crisis would cause a ripple effect in the economy. The resultant credit crunch could lower economic growth, and this could accelerate the path to recession.
Moreover, the advance estimates by the Bureau of Economic Analysis show that the U.S. economy grew at an annualized pace of 1.1% in the first quarter of 2023, slower than consensus forecasts. The results have brought in a fresh bout of recessionary concerns.
Oxford Economics' lead U.S. economist Oren Klachkin, wrote in a note, “Growth risks are tilted decidedly to the downside as the drivers that buoyed activity at the start of 2023 lose steam while the crunch from tighter credit conditions could be more severe than we've already factored into our forecast."
Moreover, the Conference Board's Leading Economic Index for the United States dropped for the 12th consecutive month in March, signaling that the recession is all set to hit in the middle of 2023.
Amid such headwinds and upcoming market volatilities, fundamentally weak stocks NCLH, AG, and DM, with poor growth prospects, could be avoided now.
Norwegian Cruise Line Holdings Ltd. (NCLH)
NCLH is a global cruise company that runs the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. It has roughly 28 ships with a total capacity of 59,150 berths. The company sells its products through retail/travel advisors and onboard cruise sales channels, alongside meetings, incentives, and charters.
The stock’s trailing-12-month gross profit margin of 11.91% is 66.1% lower than the 35.11% industry average. Also, its trailing-12-month ROE, ROTC, and ROTA of negative 181.50%, 6.49%, and 12.23% compare to the industry averages of 11.79%, 6.34%, and 3.89%, respectively.
NCLH’s forward EV/Sales of 2.18x is 98% higher than the industry average of 1.10x. Its forward EV/EBIT multiple of 17.97 is 42.6% higher than the industry average of 12.60.
NCLH’s total cruise operating expense increased 69.9% year-over-year to $1.22 billion in the fourth quarter that ended December 31, 2022. Its adjusted net loss and net loss per share stood at $439.75 million and $1.04, respectively. As of December 31, 2022, NCLH’s current assets came in at $1.87 billion, compared to $3.30 billion as of December 31, 2021.
Analysts expect NCLH’s EPS to come in at $0.74 for the fiscal year ending December 2023. Its revenue is expected to come in at $8.50 billion for the same year. Also, the company failed to surpass the consensus EPS estimates in three of four trailing quarters, which is disappointing.
The stock has plummeted 37.4% over the past year and 14.5% over the past three months to close its last trading session at $12.83.
NCLH’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to 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 Stability and Sentiment and a D for Quality. NCLH is ranked last among the four stocks in the F-rated Travel – Cruises industry.
Beyond the POWR Ratings stated above, we have also given NCLH grades for Growth, Value, and Momentum. Get all NCLH ratings here.
First Majestic Silver Corp. (AG)
Headquartered in Vancouver, Canada, AG engages in acquiring, exploring, developing, and producing mineral properties, focusing on silver and gold production in Mexico and the United States. The company owns and operates the San Dimas Silver/Gold Mine, the Jerritt Canyon Gold Mine, the Santa Elena Silver/Gold Mine, and the La Encantada Silver Mine.
AG’s trailing-12-month gross profit margin of 22.52% is 23.6% lower than the 29.47% industry average. Its trailing-12-month levered FCF margin of negative 25.62% compares to the industry average of 4.25%.
AG’s forward EV/Sales of 2.87x is 95.4% higher than the industry average of 1.47x. Its forward EV/EBITDA multiple of 16.58 is 125.4% higher than the industry average of 7.36.
On March 20, AG announced that it had temporarily suspended all its activities at Jerritt Canyon, which represented about 21% of the company’s 2022 revenue, to reduce overall costs.
Despite its efforts to increase underground mining rates since the acquisition of the Jerritt Canyon Gold Mine in Nevada, mining rates have remained below this threshold, and cash costs per ounce have remained higher than anticipated.
AG’s revenues for the fiscal fourth quarter that ended December 31, 2022, declined 27.7% year-over-year to $148.19 million. The company’s mine operating loss stood at $13.27 million compared to mine operating earnings of $40.36 million in the year-ago quarter.
Also, its net loss for the quarter expanded 323.5% year-over-year to $16.82 million. Its loss per share came in at $0.06, indicating an increase of 200% year-over-year.
For the fiscal second quarter ending June 2023, its EPS is expected to decline 50% year-over-year to $0.01.
Over the past year, the stock has declined 32.1% to close its last trading session at $7.06. It has declined 11.3% over the past three months.
It’s no surprise that AG has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system.
The stock also has an F grade for Growth and a D for Value, Momentum, Stability, Sentiment, and Quality. It is ranked last in the 11-stock F-rated Miners – Silver industry.
Click here to see the POWR Ratings of AG.
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 2.76 is 79.9% higher than the 1.53 industry average. In terms of its forward Price/Sales, DM is trading at 2.96x, which is 135.5% higher than the industry average of 1.26x.
DM’s trailing-12-month ROCE, ROTC, and ROTA of negative 83.38%, 13.74%, and 98.14% compare to the industry averages of 14.17%, 7.03%, and 5.23%, respectively. Its trailing-12-month EBIT margin of negative 101.61% compare to the 9.62% industry average.
DM’s non-GAAP operating expenses for the year that ended December 31, 2022, increased 33.1% year-over-year to $177.63 million. Its loss from operations increased 263.2% from the year-ago value to $731.76 million. The company’s non-GAAP net loss amounted to $130.71 million and $2.35 loss per share, up 78.2% and 155.4% year-over-year, respectively.
DM’s total current assets stood at $336.42 million for the year that ended December 31, 2022, compared to $402.01 million for the year-ago period that ended December 31, 2021.
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 be negative $0.05 for the same quarter.
DM’s shares have lost 37.9% over the past year and 10.6% over the past six months to close the last trading session at $2.20.
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.
DM has an F grade for Stability, Sentiment, and Quality and a D for Value. Within the F- rated Technology – 3D Printing industry, it is ranked last among six stocks.
To see the additional POWR Ratings for Growth and Momentum for DM, click here.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
NCLH shares were trading at $13.19 per share on Friday morning, up $0.36 (+2.81%). Year-to-date, NCLH has gained 7.76%, versus a 8.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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