As logistical bottlenecks worsen due to extended lockdowns across major Chinese cities, and with the continuing Russia-Ukraine conflict, the high inflationary environment is expected to continue for the foreseeable future. To tame the runaway inflation, the Fed plans to raise the interest rates several times in the coming months.
Federal Reserve Chairman Jerome Powell said, “We’re really going to be raising rates and getting expeditiously to levels that are more neutral and then that are actually tight.” Though many Fed officials believe the U.S. economy can withstand the monetary policy tightening, the stock market is expected to experience significant pressure in a rising rate environment.
Therefore, we think fundamentally weak stocks Robinhood Markets, Inc. (HOOD) and Snowflake Inc. (SNOW), which look overvalued at their current price levels, are best avoided now.
Robinhood Markets, Inc. (HOOD)
HOOD in Menlo Park, Calif., 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. The company aims to democratize finance for all.
HOOD’s total net revenues increased 14.2% year-over-year to $362.71 million for the fourth quarter, ended Dec. 31, 2021. However, its net loss came in at $423.27 million, compared to $13.03 million in net income in the previous period. Also, its net loss per share came in at $0.49, versus $0.02 in EPS in the year-ago period. And its total operating expenses came in at $783.15 million, up 162.5% year-over-year.
In terms of forward P/S, HOOD’s 4.71x is 60.5% higher than the 2.94x industry average.
HOOD’s revenue is expected to decline 23.8% to $397.65 million for the quarter ended June 30, 2022. Its EPS is estimated to remain negative in 2022 and 2023. Its shares have declined 19.3% in price over the past month to close yesterday’s trading session at $10.00.
HOOD’s POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has an overall F grade, which equates to a Strong Sell in our POWR Ratings system.
HOOD has an F grade for Stability, Sentiment, and Quality and a D grade for Value. Click here to access the additional POWR Ratings for HOOD (Growth and Momentum). HOOD is ranked #148 of 157 stocks in the F-rated Software – Application industry.
Click here to check out our Software Industry Report for 2022
Snowflake Inc. (SNOW)
SNOW provides a cloud-based data platform in the United States and internationally. The San Mateo, Calif., company’s platform offers a Data Cloud that enables customers to consolidate data into a single source of truth to drive meaningful business insights, build data-driven applications, and share data.
On March 3, 2022, Glancy Prongay & Murray LLP announced an investigation on behalf of SNOW investors concerning possible violations of federal securities laws. This turn of events might harm the company’s near-term business prospects.
SNOW’s revenue increased 101.5% year-over-year to $383.77 million for the fourth quarter, ended Jan. 31, 2022. However, its total operating expenses came in at $401.62 million, up 30.4% year-over-year. In addition, its total current liabilities came in at $1.40 billion for the period ended Jan.31, 2022, compared to $789.26 million for the period ended Jan. 31, 2021. Also, its short-term investments came in at $2.77 billion compared to $3.09 billion for the same period.
In terms of forward P/S, SNOW’s 27.67x is 820.1% higher than the 3.01x industry average.
The stock has declined 18.7% in price over the past month to close yesterday’s trading session at $178.76.
SNOW has an overall D rating, which equates to Sell in our POWR Ratings system. It has an F grade for Stability and a D grade for Value, Momentum, and Quality.
We have also rated it for Growth and Sentiment. Click here to access all the SNOW ratings. It is ranked #67 of 81 stocks in the D-rated Technology – Services industry.
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HOOD shares were trading at $9.67 per share on Wednesday afternoon, down $0.33 (-3.30%). Year-to-date, HOOD has declined -45.55%, versus a -11.09% 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...
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