The major stock market indexes rallied last week thanks to a solid start to the third-quarter earnings season. According to a Factset report, 80% of the S&P 500 companies that have so far reported third-quarter results have beaten EPS estimates, which is above the 76% five-year average.

However, rising Treasury yields, high inflation, and supply chain constraints continue to worry investors. In addition, The Goldman Sachs Group, Inc. (GS) cut its U.S. economic growth target to 5.6% for 2021 and 4% for 2022 due to an expected decline in fiscal support through the end of next year and a more delayed recovery in consumer spending than previously expected.

Against this backdrop, we think it could be wise to avoid Carvana Co. (CVNA), Robinhood Markets, Inc. (HOOD), and Royal Caribbean Cruises Ltd. (RCL). The valuations of these stocks are not in sync with their growth prospects. Moreover, these stocks are rated F (Strong Sell) in our POWR Ratings system.

Carvana Co. (CVNA)

CVNA, together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify many aspects of a vehicle prior to their purchase. CVNA is based in Phoenix, Ariz.

A lawsuit was filed against certain directors of CVNA in May 2020 and is pending to date. The plaintiff alleges that despite knowing that the company was well-positioned to weather the pandemic, its board of directors permitted a self-dealing transaction, which had the effect of benefitting the controllers at the company’s expense.

CVNA’s net sales came in at $3.34 billion, up 198.4% year-over-year. However, its total liabilities came in at $3.81 billion for the period ended June 30, 2021, versus $2.23 billion for the period ended December 31, 2020. Its cash and cash equivalents were $201 million compared to $301 million for the same period in the prior year. Also, its net cash used in operating activities came in at a $1.14 billion loss compared to a $175 million loss for the six months ended June 30, 2021.

In terms of forward P/B, CVNA’s 98.83x is 2,859.4% higher than the 3.34x industry average. Moreover, its forward P/S of 2x is 66% higher than the 1.21x industry average.

Analysts expect CVNA’s EPS to remain negative in its fiscal years 2021 and 2022. And its EPS is expected to decline at a rate of 210.5% per annum over the next five years. Also, the stock has lost 13% in price over the past month to close Friday’s trading session at $287.06.

CVNA’s POWR Ratings reflect its poor prospects. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

It has an F grade for Value and Quality, and a D grade for Growth and Stability. Click here to access the additional POWR Ratings for CVNA (Momentum and Sentiment). CVNA is ranked #75 of 78 stocks in the Internet industry.

Click here to check out our E-commerce Industry Report for 2021

Robinhood Markets, Inc. (HOOD)

HOOD operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. Its segments include Robinhood Financial LLC; Robinhood Securities, LLC; and Robinhood Crypto, LLC. HOOD is headquartered in Menlo Park, Calif.

For the second quarter, ended June 30, 2021, HOOD’s total net revenues increased 131.5% year-over-year to $565.33 million. However, its total operating expenses came in at $500.73 million, up 168.9% year-over-year. Its net loss was $501.67 million, versus $57.58 million in net income in the prior-year quarter. Also, its loss per share was $2.16 compared to an EPS of $0.09 in the year-ago period.

In terms of forward P/B, HOOD’s 68.38x is 5,578% higher than the 1.20x industry average. Also, its forward 17.47x P/S is 410% higher than the 410x industry average.

Analysts expect HOOD’s EPS to remain negative in its fiscal year 2021 and 2022. Over the past month, the stock has lost 2% in price to close Friday’s trading session at $41.03.

HOOD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. In addition, the stock has an F grade for Growth and Value, and a D grade for Stability, Sentiment, and Quality.

We also have graded HOOD for Momentum. Click here to access all the HOOD ratings. HOOD is ranked #149 of 160 stocks in the Software – Application industry.

Click here to check out our Software Industry Report for 2021

Royal Caribbean Cruises Ltd. (RCL)

RCL operates as a cruise company worldwide. The Miami, Fla.-based company operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands. It has 61 ships with an aggregate capacity of approximately 137,930 berths. 

On August 30, 2021, RCL and CELEBRITY CRUISES teamed up to celebrate travel advisors. However, it’s uncertain if the company will witness any significant growth given its weak financials.

RCL’s net revenues decreased 71% year-over-year to $50.91 million for the second quarter, ended June 30, 2021. Its passenger ticket revenues also declined 78.7% year-over-year to $22.79 million. Its total liabilities came in at $25.81 billion for the period ended June 30, 2021, compared to $23.7 billion for the period ended December 31, 2020.

In terms of forward P/B, RCL’s 3.66x is 9.6% higher than the 3.34x industry average. In terms of forward P/S, RCL’s 11.93x is 888.4% higher than the 1.21x industry average.

RCL’s EPS is expected to remain negative in the current year. Its revenue is expected to decrease 18.4% in its fiscal year 2021. The stock has lost 5.8% in price since hitting its 52-week high of $99.24 on February 25, 2021, to close Friday’s trading session at $86.32.

RCL’s POWR Ratings reflect its poor prospects. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

In addition, it has an F rating for Value, Sentiment and Quality, and a D grade for Growth and Stability. We’ve also rated it for Momentum. Click here to access all the RCL ratings. RCL is ranked #3 of 4 stocks in the Travel – Cruises industry.

CVNA shares were trading at $289.44 per share on Monday afternoon, up $2.38 (+0.83%). Year-to-date, CVNA has gained 20.83%, versus a 20.63% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

More Resources for the Stocks in this Article