Technology company Creatd, Inc. (CRTD - Get Rating) in Fort Lee, N.J., markets branded digital content and e-commerce opportunities, and develops curated digital communities for broadcasters, creators, brands and entrepreneurs. CRTD’s shares are up 26.5% over the past three months and 44.9% over the past month. However, the stock has lost 61.3% over the past year.

Although substantial growth in its creator subscription base since the launch of the company’s flagship Vocal+ platform in early 2020 has bolstered its revenue growth, the company has not been able to generate any profit in the past 12 months. CRTD’s stock is currently trading 28.6% below its 52-week high of $7.81.

The company’s current valuation is not justified by its staggering losses and rising expenses. Also, expected pressure on tech stocks because President Biden has signed a new executive order to crack down on anti-competitive practices in big tech, along with  CRTD’s weak profitability, could cause the stock’s price to pullback. Here is what we think could influence CRTD’s performance in the near term:

Acquisition Can Increase Costs

On June 16, CRTD agreed with WHE Agency to acquire a 55% ownership stake in the company through its subsidiary Creatd Partners. The proposed transaction includes $275,000 in cash and $660,000 in equity. Although the acquisition should expand CRTD’s tools and resources and secure additional revenue streams, it could  weigh heavily on the company’s already weak balance sheet.

Selling Shares to Fund Development

Last month, CRTD closed  its public offering of 750,000 shares of its common stock. The offering raised gross proceeds of roughly $2.6 million. Also, CRTD granted the option to purchase up to an additional 112,500 shares of its common stock to the deal’s underwriters. The company  intends to use the offering’s net proceeds of approximately $2.4 million for general corporate purposes.

Also, CRTD closed a private placement of $4.7 million of convertible notes, exercisable at $4.50 per share. It plans to use the placement’s $4 million in net proceed to fund marketing and development expenses.

Lackluster Financials

Although CRTD’s total revenues increased 154% year-over-year to $744,000 in the first quarter, ended March 31, 2020, its operating expenses surged 215.7% from its year-ago value to $6.69 million. In addition, the company reported a $5.95 million loss from operations, representing an 225.6% increase from its  year-ago value. Also, its net loss came in at $6.64 million for this period, compared to a $2.99 million net loss in the prior-year period. CRTD’s loss per share came in at $0.68. The company’s comprehensive loss increased 122% from its  $6.65 million year-ago value.

CRTD’s 0.36% trailing-12-month asset turnover ratio is 18.7% lower than the 0.4% industry average. Also, its trailing-12-month levered free cash flow margin, ROA and ROTC came in at negative 223.3%, 433% and 558.4%, respectively. Its negative $11.32 million trailing-12-month cash from operations compares with the $378.48 million industry average.

Stretched Valuation

In terms of trailing-12-month EV/Sales, CRTD is currently trading at 29.10x, 850.7% higher than the 3.06x industry average. Its 16.36 trailing-12-month Price/Sales multiple  is 654.5% higher than the 2.17 industry average. Also, the stock’s 23.27 trailing-12-month Price/Book ratio  is 762.8% higher than the 2.70 industry average.

POWR Ratings Reflect Bleak Prospects

CRTD has an overall F rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. CRTD has an F grade for Value, and a D for Quality. This justifies the stock’s higher-than industry valuation multiples and low profitability.

Also, it has a C grade for Growth. This is in sync with the company’s inadequate financials.

In addition to the grades we’ve highlighted, one can check out additional CRTD ratings for Sentiment, Stability, and Momentum here. Of the 74 stocks in the F-rated Internet industry, CRTD is ranked #73.

There are several top-rated stocks in the same industry. Click here to view them.

Bottom Line

CRTD has been bleeding money. On top of that, investors’ concerns surrounding a broad tech sell-off as President Biden increases scrutiny of tech companies could lead to a price retreat by the stock in the near term. Furthermore, CRTD looks significantly overvalued at its  current price level. So, we think it’s wise to avoid the stock now.

CRTD shares were trading at $6.30 per share on Tuesday morning, up $0.72 (+12.90%). Year-to-date, CRTD has gained 51.44%, versus a 17.68% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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