Increasing demand for products and services due to pandemic-driven trends or pent-up demand created by restrictions on several business activities helped many stocks capture solid investor participation over the past year. However, these stocks’ scintillating rally in some instances has caused a disconnect between the growth prospects and the current valuations of some stocks.
When the economy began recovering earlier this year, investors started rebalancing their portfolios, taking profits from overvalued stocks and moving to capitalize on the economic recovery by betting on cheaper cyclical stocks. While some of these overvalued stocks remain investor favorites given their potential to keep growing, many have been witnessing a sell-off.
We believe popular stocks Carnival Corporation (CCL), Peloton Interactive, Inc. (PTON), and Lemonade Inc. (LMND) will continue hemorrhaging investors, given their poor financials, which don’t justify their current valuations. So, naturally, we think they are best avoided now.
Carnival Corporation & plc (CCL)
Based in Miami, Florida, CCL is a leisure travel company that offers cruise services and vacations to all cruise destinations. The company operates through four segments—North America and Australia (NAA) cruise operations, Europe and Asia (EAA) cruise operations, Cruise Support, and Tour and Other. It provides port destinations and other services, and owns and operates hotels, lodges, glass-domed railcars, and motor coaches. It sells its cruises primarily through travel agents and tour operators.
On April 22, 2021, CCL’s Costa Cruises announced its 2021 summer programs, with enhanced health and safety protocols and exciting new features for cruises to beautiful destinations in the Mediterranean. It will also introduce a renewed program of excursions that will allow guests to discover off-the-beaten-path locations. CCL hopes to attract more guests this year with its high-quality service and vacation packages.
On April 21, the Government of Barbados partnered with Seabourn, CCL’s ultra-luxury cruise line, to resume sail cruises through a series of new summer voyages operating round-trip out of Bridgetown aboard the Seabourn Odyssey cruise ship, beginning on July 18. The Seabourn Ovation cruise ship will resume guest operations in Greece starting July 3. Seabourn hopes to attract more travelers with its two distinct seven-day itineraries on its Odyssey cruise ship.
For its fiscal 2021 first quarter, ended February 28, CCL’s revenues declined 99.5% year-over-year to $26 million. Revenue from its passenger ticket section decreased 99.9% year-over-year to $3 million. Its operating loss increased 113.7% year-over-year to $1.52 billion. Its adjusted net loss came in at $1.95 billion for the quarter, compared to $150 million in net income in the first quarter of 2020. Also, the company’s adjusted loss per share was $1.79, compared to an EPS of $0.22 in the prior-year period.
Analysts expect CCL’s EPS to be negative for its fiscal year 2021. CCL missed the Street’s EPS estimates in three of the trailing four quarters. Its revenue is expected to decline 48% year-over-year to $203.38 million for the current quarter, ending May 30. Analysts expect the stock’s EPS to decline by 114.9% per annum over the next five years.
CCL has lost 40.8% over the past three months and closed yesterday’s trading session at $27.80. It is currently trading 9.2% below its 52-week high of $30.63.
CCL’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to 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 also has an F grade for Quality, Value, and Stability. We have also graded CCL for Sentiment, Growth, and Momentum. Click here to access all of CCL’s ratings.
CCL is ranked #4 of 4 stocks in the F-rated Travel – Cruises industry.
Peloton Interactive, Inc. (PTON)
Headquartered in New York, PTON provides an interactive fitness platform and delivers in-studio fitness classes, fitness clubs, at-home fitness equipment and content, and health & wellness apps. The company operates through three segments: Connected Fitness Products, Subscription, and Other. It markets and sells its interactive fitness products directly through its retail showrooms and at onepeloton.com.
In an announcement dated April 21, Rosen Law Firm said it is investigating potential securities claims on behalf of PTON’s shareholders and preparing a class action based on allegations that PTON has issued materially misleading business information to investors. This was led by the U.S. Consumer Product Safety Commission’s press release on April 17 that warned consumers to stop using PTON’s Tread+ treadmills after one child’s death and 38 other injury cases were reported while using it.
On April 1, PTON closed the acquisition of Precor, one of the largest global commercial fitness equipment providers. It hopes to establish its U.S. manufacturing capacity and boost its research and development capabilities with Precor’s highly skilled team, and to accelerate its penetration of the commercial market. Also, PTON plans to produce connected fitness products in the U.S. and enhance its customer experience before year’s end.
PTON is scheduled to release its fiscal 2021 third quarter results on May 6, 2021 after the market closes. PTON’s income from operations had decreased 14.7% sequentially to $58.80 million in the last reported quarter. The company’s net income came in at $63.60 million, which represents an 8.2% decline sequentially. Also, its EPS decreased 10% year-over-year to $0.18 for the quarter. And its net cash provided by financing activities decreased 96.4% year-over-year to $43.6 million as of December 31, 2021.
The consensus EPS estimate of $0.02 for the current quarter, ending June 30, represents a 92.6% decline year-over-year. Analysts expect the stock’s EPS to decline 6.1% per annum over the next five years.
The stock has gained 244.1% over the past year but lost 32% year-to-date and 29.2% over the past three months. PTON ended yesterday’s trading session at $103.22, which is 39.7% below its 52-week high of $171.09.
PTON’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
The stock has an F grade for Value and Stability, and a D grade for Sentiment. In addition to the POWR Ratings grades we’ve just highlighted, one can see PTON’s ratings for Momentum, Quality, and Growth here.
PTON is ranked #62 of 72 stocks in the C-rated Consumer Goods industry.
Lemonade Inc. (LMND)
LMND is a peer-to-peer property and casualty insurance company in the United States and Europe. The company’s insurance products cover stolen or damaged property and personal liability. It also offers renters, homeowners, pet, and life insurance products, as well as landlord insurance policies. LMND also acts as an insurance agent that offers underwriting and claims services through its subsidiary.
On April 20, LMND announced that it is adding ‘Lemonade Car’ into its product portfolios. Set to launch in this year, LMND expects its car insurance product to generate good returns based on rising demand in the United States.
In January, LMND priced a primary offering of 3.30 million shares and a secondary offering 1.52 million shares at $165.00 per share.
LMND is scheduled to announce its fiscal 2021 first quarter results on May 12, before the market opens. LMND’s revenue came in at $20.5 million for the fourth quarter ended December 31, 2020, which represents a 12.8% year-over-year decline. Its net loss increased 3.7% year-over-year to $33.90 million. The company’s loss per share came in at $0.60 for the quarter. And its total liabilities and stockholders’ equity was $828.70 million, up more than 100% year-over-year.
Analysts expect the company’s EPS to remain negative for its fiscal year 2021. Its revenue is estimated at $26.24 million for the current quarter, ending June 30, which represents a 12.2% decline year-over-year. LMND has gained 92.6% over the six months but lost 36.6% over the past three months and closed yesterday’s trading session at $94.60.
It’s no surprise that LMND has an overall F rating, which equates to Strong Sell in our POWR Ratings system. Also, the stock has an F grade for Value, and a D grade for Quality and Sentiment. Click here to see the additional POWR Ratings for LMND (Momentum, Stability and Growth).
LMND is ranked #60 of 60 stocks in the B-rated Insurance – Property & Casualty industry.
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CCL shares were trading at $27.95 per share on Thursday morning, up $0.15 (+0.54%). Year-to-date, CCL has gained 29.04%, versus a 12.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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