The stock market has been bearish for months due to the multi-decade-high inflation and the aggressive interest rate hikes delivered by the Fed to cool down prices. However, cooling inflation rates in October, November, and December, combined with moderating wage rates, have raised investors’ optimism.

However, with consumer spending slowing down and high costs still cutting into profits, Morgan Stanley’s (MS) investment chief Michael Wilson, warns an earnings recession is ‘imminent’ and that investors shouldn’t let the recent rally fool them into buying because corporate earnings are still set to decline.

Further, the firm projects that the S&P could tumble 25% to a two-year low of 3,000 points as earnings season ramps up. Additionally, analysts at Goldman Sachs Group Inc. (GS) predict the S&P to crater up to 22% this spring if the economy falls into a recession. If not, they foresee the index falling by another 10% before the year-end.

Amid the weakness, with the layoffs intensifying in recent weeks as a measure of cost-cutting, major corporations slashed more than 100,000 jobs last year.

While the markets remain sluggish, it could be wise to avoid buying fundamentally weak stocks Lyft, Inc. (LYFT), AMC Entertainment Holdings, Inc. (AMC), and Tilray Brands, Inc. (TLRY).

Lyft, Inc. (LYFT)

LYFT owns and operates multimodal transportation networks in the United States and Canada that offer access to various transportation options through its platform and mobile-based applications. The Lyft Platform provides a marketplace where drivers are matched with riders via the Lyft App.

In terms of forward non-GAAP P/E, LYFT is trading at 39.45x, 129.9% higher than the industry average of 17.16x. Also, its forward EV/EBIT multiple of 30.50 compares to the industry average of 15.58.

LYFT’s total operating expenses increased 25.7% year-over-year to $1.34 billion in the third quarter that ended September 30, 2022. The company’s loss from operations widened 41.6% from the year-ago value to $290.38 million, while its net loss came in at $422.20 million, widening 323.4% year-over-year. Also, its loss per share widened 293.3% year-over-year to $1.18.

Analysts expect LYFT’s EPS to decline by 68.9% per annum over the next five years. Over the past year, the stock has lost 53.7% to close the last trading session at $16.18.

LYFT’s weak fundamentals are reflected in its POWR Ratings. It has an overall rating of D, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It also has a D grade for Stability and Sentiment. It is ranked #57 out of 79 stocks in the Technology – Services industry. Click here to see the other ratings of LYFT for Growth, Value, Momentum, and Quality.

AMC Entertainment Holdings, Inc. (AMC)

AMC is a leading theatrical exhibition company that delivers movie-going experiences. The company owns, operates, and has interests in theaters in the United States and internationally. It operates more than 950 theaters and 10,600 screens.

On December 22, 2022, AMC announced a $110 million equity capital raise through the sale of AMC Preferred Units (APE) to Antara Capital, LP, at a weighted average price of $0.660 per share. The company also sought a special shareholder meeting to vote on its proposal to convert APE units into AMC common shares and reverse-split the number of AMC common shares at a 1:10 ratio.

In the same month, the company also made an announcement that it had raised $162 million of equity capital through sales of 125.9 million AMC Preferred Equity Units.

In terms of forward EV/EBITDA, AMC is trading at 148.45x, which is significantly higher than the industry average of 8.90x. Also, its forward EV/Sales multiple of 3.06 compares to the industry average of 2.05.

In the third quarter that ended September 30, 2022, AMC’s operating costs and expenses increased 19.3% year-over-year to $1.08 billion. Its net loss and adjusted EBITDA loss widened by 1.2% and 138.9% from their year-ago values to $226.90 million and $12.90 million, respectively. Also, AMC’s adjusted loss per share came in at $0.20.

Analysts expect AMC’s EPS for the fiscal year 2022 to remain negative. Its revenue for the fourth quarter (ended on December 31, 2022) is expected to decline 5.3% year-over-year to $1.11 billion. Also, Its EPS is expected to decrease by 217% per annum over the next five years.

Over the past nine months, the stock has lost 43.4% to close the last trading session at $5.51.

AMC’s POWR Ratings reflect this weak outlook. It has an overall rating of D, equating to Sell in our proprietary rating system. It has an F grade for Stability and Sentiment and a D for Value. Within the Entertainment – Movies/Studios industry, it is ranked #5 out of 6 stocks.

Beyond what is stated above, we have also given AMC grades for Growth, Momentum, and Quality. Get all AMC ratings here.

Tilray Brands, Inc. (TLRY)

Headquartered in Leamington, Canada, TLRY operates globally as a cannabis-lifestyle and consumer packaged goods company. It operates through four segments Cannabis Business; Distribution Business; Beverage Alcohol Business; and Wellness Business.

For the second quarter of the fiscal year 2023, which ended November 30, TLRY’s net revenue decreased 7.1% year-over-year to $144.14 million. During the same period, the company’s total operating expenses increased 4.1% year-over-year to $91.92 million. Furthermore, the company’s adjusted net loss and loss per share came in at $35.31 million and $0.06, respectively.

The stock’s forward EV/EBITDA is trading at 32.96x, 139.9% higher than the industry average of 13.74x.

Street expects TLRY’s EPS for the fiscal years 2022 and 2023 to remain negative. Its revenue for the third quarter ending February 2023 is expected to decline marginally year-over-year to $151.70 million. Over the past year, the stock has lost 38.5% to close the last trading day at $3.21.

TLRY’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system.

It also has an F grade for Value, Momentum, and Sentiment and a D for Stability. In the D-rated Medical – Pharmaceuticals industry, it is ranked #169 of 170 stocks. Click here to see the additional POWR Ratings for TLRY (Growth and Quality).

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LYFT shares were trading at $15.75 per share on Monday afternoon, down $0.43 (-2.66%). Year-to-date, LYFT has gained 42.92%, versus a 5.34% 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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