2 Stocks with Too Much Downside Risk to Buy Now

: CVNA | Carvana Co.  News, Ratings, and Charts

CVNA – The Fed’s hawkishness and mounting recession fears are expected to keep the stock market under pressure. Amid this backdrop, it could be wise to avoid fundamentally weak stocks Carvana (CVNA) and Peloton Interactive (PTON), which possess significant downside risks. Continue reading….

The stubbornly high inflation has shown no signs of slowing down, as was evident from August’s CPI report. Yesterday, the Fed announced a 75 basis-point interest rate hike for the third consecutive time and hinted at continuing its aggressive policy measures until inflation reaches its target level.

The Fed’s aggressive stance has led to many economists predicting a recession by next year. Nouriel Roubini, CEO of Roubini Macro Associates, predicts that a recession will likely hit the United States by the end of this year before spreading globally next year. He said, “It’s not going to be a short and shallow recession; it’s going to be severe, long, and ugly.”

These concerns are expected to weigh on investors’ sentiments and will likely keep the market under pressure in the upcoming months. Therefore, we think avoiding fundamentally weak stocks Carvana Co. (CVNA) and Peloton Interactive, Inc. (PTON) could be wise.

Carvana Co. (CVNA)

CVNA operates an e-commerce platform for buying and selling used cars in the United States. Its platform permits customers to research and identify a vehicle, inspect, obtain financing and warranty coverage and purchase it. It also enables them to schedule delivery or pick-up from their desktop or mobile devices.

CVNA’s gross profit for the fiscal second quarter ended June 30, 2022, declined 28.3% year-over-year to $396 million. The company’s net loss came in at $238 million, compared to a net income of $22 million in the year-ago period.

Its adjusted EBITDA loss amounted to $239 million, compared to an adjusted EBITDA of $112 million in the prior year period. Also, its net loss per share stood at $2.35 versus an EPS of $0.26 in the same quarter last year.

Analysts expect CVNA’s EPS for fiscal 2022 and 2023 to remain negative. It has failed to surpass Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has lost 90.4% to close the last trading session at $30.66.

CVNA’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.

It has an F grade for Growth, Stability, Sentiment, and Quality. It is ranked last out of 65 stocks in the F-rated Internet industry. Click here to see the additional ratings of CVNA for Value and Momentum.

Peloton Interactive, Inc. (PTON)

PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.

PTON’s total revenue decreased 27.6% year-over-year to $678.70 million for the fourth quarter ended June 30, 2022. Its operating loss widened 298.6% from the prior-year quarter to $1.20 billion. The company’s net loss came in at $1.24 billion, widening 297.3% year-over-year.

In addition, its adjusted EBITDA loss also widened 540.1% from the year-ago value to $288.70 million. Its loss per share stood at $3.68, up 250.5% year-over-year.

Street expects PTON’s revenues to decline 20.6% year-over-year to $638.95 million in the first quarter ending September 30, 2022. Its EPS is expected to decrease 76.5% per annum over the next five years and remain negative in the current year. It has failed to surpass the EPS estimates in each of the trailing four quarters.

Over the past year, the stock has declined 91% to close the last trading session at $9.05.

PTON’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.

It has an F grade for Sentiment and Quality and a D for Value and Stability. Among the 59 stocks in the Consumer Goods industry, it is ranked #57. To see additional ratings of PTON for Growth and Momentum, click here.


CVNA shares were trading at $29.18 per share on Thursday morning, down $1.48 (-4.83%). Year-to-date, CVNA has declined -87.41%, versus a -19.92% rise in the benchmark S&P 500 index during the same period.


About the Author: Shweta Kumari


Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...


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