With geopolitical tensions over Russia’s invasion of Ukraine adding to market volatility, here are some of the stocks TheStreet’s market experts are looking at this week.
DraftKings $17.21. 5-day performance. (-)25.89%.
DraftKings (DKNG) shares slumped late last week after the company posted stronger-than-expected fourth-quarter earnings, but forecast a much wider loss over the coming year for the online sports betting and gaming group.
“DraftKings said revenues for the three months ending in December rose 47% from last year to $473 million as more states eased restrictions on online gaming,” TheStreet’s Martin Baccardax reported. “Marketing and expansion costs, however, ate into the group's bottom line, which came in at $128 million.”
Looking into its 2022 financial year, DraftKings said it sees overall revenues of around $1.9 billion at the mid-point. That was a solid boost from its prior forecasts. The improved outlook was linked to the launch of mobile sports betting in New York and Louisiana earlier this year. The company forecasted a much wider-than-expected adjusted loss range of between $825 million and $925 million, up from $676 million over the whole of 2021.
If state legalization trends continue, however, DraftKings said it expects to turn a profit by the fourth quarter of next year.
“DraftKings’ strong fourth quarter performance exceeded our expectations on the top and bottom line,” said CEO Jason Robins in a statement. “Our excellent quarter capped off a year in which five of our states were Contribution Profit positive, further demonstrating the effectiveness of our state playbook and supporting our positive view of the industry’s TAM. We enter 2022 positioned to grow our market share, further optimize our user experience and continue to strengthen our multi-product suite of offerings.”
Roku $113.45. 5-day performance (-) 31.40%.
What to make of Roku (ROKU), which is heading downstream at a rapid pace?
Roku shares fell 20% immediately after the company’s Feb. 17 earnings release, with the company’s fourth-quarter revenues coming in lower than expected. The company’s share price is now down by 37% since the start of the year.
Earnings came in at 17 cents per share, adjusted, vs. 9 cents per share as expected by analysts. However, revenue stood at $865.3 million, vs. $894.0 million expected by analysts, according to Refinitiv.
Year-to-year revenue performance was down 33%, compared with 51% growth in Q3 and 81% in Q2.
Like many companies, Roku is pointing a finger at supply chain issues, which have contributed to underwhelming performance.
“Similar to Q3, overall U.S. TV unit sales in Q4 fell below pre-COVID 2019 levels,” Anthony Wood, Roku’s founder and CEO, and Steve Louden, its finance chief, wrote in a letter to shareholders. “Some of our Roku TV OEM partners were hit particularly hard with inventory challenges, which negatively impacted their unit sales figures and market share in Q4.”
TheStreet’s Bret Kenwell said that Roku is in the midst of a “brutal ride” the past few months and “the uncertainty is making it even harder.”
Walmart $137.44. 5-day performance 1.97%.
The catchphrase for Walmart (WMT) these days is “buy the wares, but not the shares.”
That’s the sentiment from TheStreet’s Paul Price, who’s increasingly bearish on WMT stock.
“Media talking heads were falling all over themselves on Thursday after Walmart posted slightly better than expected fiscal Q4 earnings per share,” he said. “The report, for the period ended Jan. 31, was no big deal. Full year results were $6.43 vs. a consensus view for $6.40. The quarterly dividend rate went up a penny a share, to $2.24 annually.”
It's not like WMT has been a stellar performer. “The firm's five and 10-year annualized growth metrics have been puny,” Price said. “Not much better is expected over the coming three to five years, either.”
At its Thursday quote of $138.73, the shares were commanding 20.7-times forward earnings. According to Price, that seems “completely unjustifiable” when looking at the data.
“Since 2011 WMT's average P/E was 17.5-times,” he said. “Recent years saw it expand to as high as 27.7-times at December of 2020's peak of $153.70. Buyers back then paid too much. They are still well underwater more than 13-months later, despite the end of fiscal 2022 report. WMT's Thursday close of $138.88 left the stock in one of its most pricey valuations of the past decade.”
So what is WMT really worth? It all depends on what P/E investors think it should trade for.
“At 17.5-times forward estimates it would only fetch around $117 - $120,” Price said. “Many people would argue that it should be more like 19.4-times based on more recent years' price action. At that level Walmart would still only be worth about $130 by this time next winter.”
Price is not alone with his view on Walmart. Yahoo Finance calls the stock overvalued and it’s still down about 9% from last August's peak of $152.57. Then there’s Morningstar, which carries a neutral rating of WMT while calling fair value as $145.
“The only way to justify that, though, is by assuming a sustainable 21.7-times multiple,” Price said. “I'm not willing to buy into that premise.”
Right now, Price can find no basis whatsoever to hold or own Walmart at the current price point.
“If you buy, or fail to cash out of WMT, don't say you weren't warned,” he said.
