This year has so far been extremely challenging for the stock market. The U.S. equity indices have been pushed into correction territory since the beginning of 2022 on concerns of 40-year high inflation, the Fed’s hawkish policy stance, lingering supply chain constraints, geopolitical crisis, and the possibility of an economic slowdown. Over the past month, the S&P 500 Index has declined 8.4%, while NASDAQ Composite Index has plunged 11.6%.

Due to recent macroeconomic shocks and uncertain economic conditions, some struggling companies have cut their guidance for fiscal 2022. These stocks are expected to remain under severe pressure in the near term due to their deteriorating fundamentals. Certain stocks are best avoided now because of their weak financials, history of huge losses, and bleak growth attributes.

Given the backdrop, we think it advisable to avoid adding fundamentally weak stocks Peloton Interactive, Inc. (PTON), Upstart Holdings, Inc. (UPST), and Avaya Holdings Corp. (AVYA) to one’s portfolio.

Peloton Interactive, Inc. (PTON)

PTON in New York City provides interactive fitness products in North America and internationally. The company provides fitness products with streams of live and on-demand classes. In addition, it offers connected fitness subscriptions for users and access to various live and on-demand classes through the Peloton Digital app for connected fitness subscribers. PTON has more than 6.7 million members. It sells its interactive fitness products directly through its retail showrooms and at onepeloton.com.

In its fiscal 2022 third quarter, ended March 31, 2022, PTON’s total revenue decreased 23.6% year-over-year to $964.30 million, while its total gross profit declined 58.6% year-over-year to $184.20 million. Its total operating expenses increased 100.6% from the year-ago value to $920 million. Its adjusted EBITDA declined 407% year-over-year to a negative $194 million. In addition, the company’s net loss and net loss per share attributable to common stockholders amounted to $757.10 million and $2.27, respectively, registering an increase of 8,703.5% and 7,466.7% from the prior-year period.

Due to PTON’s excess inventory, which adversely affected the company’s cash, and unstable and declining demand, the company offered a weak sales outlook. According to Refinitiv estimates, PTON now expects revenue for its  fiscal 2022 fourth quarter to be  $675 million -$700 million, compared to analysts’ revenue estimates of $700 million. PTON expects connected fitness subscribers to total 2.98, representing just a 1% increase from the prior quarter.

The consensus revenue estimate of $724.96 billion for its fiscal 2022 fourth quarter, ending June 30, 2022, represents a 22.6% year-over-year decline from the same period in 2021. It is no surprise that the company has surpassed the consensus revenue estimates in three of the trailing four quarters. The $0.72 consensus loss per share estimate for the current quarter represents a 28.7% rise from the year-ago value.

The stock declined 54.9% in price year-to-date and 82.8% over the past year. It closed Friday’s trading session at $15.87.

PTON’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

PTON has a grade of F for Stability, Quality, and Sentiment. It has a D grade for Value. Within the D-rated Consumer Goods industry, it is ranked #61 of 61 stocks. To see PTON’s POWR Ratings for Growth and Momentum, click here.

Upstart Holdings, Inc. (UPST)

UPST in San Mateo, Calif., is a lending firm that operates a cloud-based artificial intelligence (AI) lending platform in the U.S. The company’s platform aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners. Its lending platform connects consumers, banks, and institutional investors through a shared AI lending platform.

UPST’s total operating expenses increased 106.3% year-over-year to $275.30 million in its fiscal year 2022 first quarter, ended March 31, 2022. Its other expense amounted to $2.12 million for the period. The company’s net cash used in operating activities rose 719.1% year-over-year to $266.80 million. Its cash came in at $757.83 million as of March 31, versus  $986.61 million as of Dec. 31, 2021.

Amid rising interest rates and an uncertain economy, UPST cut its full-year revenue outlook. “Given the general macro uncertainties and the emerging prospect of a recession later this year, we have deemed it prudent to reflect a higher degree of conservatism in our forward expectations,” said CFO Sanjay Datta on UPST’s earnings call. For its fiscal year 2022, the company now expects revenue of 1.25 billion, as compared to the company’s prior guidance of $1.40 billion. It expects second-quarter revenue of $295 million – $305 million, while analysts surveyed by Refinitiv expected $335 million.

The Street expects UPST’s EPS to amount to $0.32 for its fiscal year 2022 second quarter, ending June 30, 2022, representing a decline of 48.5% year-over-year. Shares of UPST have plunged 83.7% in price over the past six months and 66.8% over the past year. It closed Friday’s trading session at $38.13.

UPST’s POWR Ratings reflect its poor prospects. The company has an overall B rating, which translates to Sell in our proprietary rating system.

The stock has an F grade for Stability and Sentiment and a D grade for Momentum. It is ranked #78 of 106 stocks in the D-rated Financial Services (Enterprise) industry. To see additional POWR Ratings (Growth, Value, and Quality) for UPST, click here.

 Avaya Holdings Corp. (AVYA)

AVYA in Santa Clara, Calif., provides digital communications products, solutions, and services for businesses worldwide. The company operates through two segments: Products & Solutions and Services. Its Products & Solutions segment provides unified communications and collaboration (UCC), and contact center (CC) platforms, applications, and devices. AVYA’s Services segment offers global support services, enterprise cloud and managed services, and professional services.

In the fiscal year 2022 second quarter, ended March 31, 2022, AVYA’s revenue decreased 3% year-over-year to $716 million. Its operating income declined 22.3% from its year-ago value to $115 million. Its adjusted EBITDA decreased 18.1% from the prior-year period to $145 million. The company’s net income and earnings per share came in at $51 million and $0.53, respectively, registering a decline of 29.2% and 28.4% year-over-year.

AVYA lowered its guidance for its fiscal year 2022. The company now expects fiscal 2022 revenue of  $2.82 billion -$2.86 billion, compared to its previous guidance of $2.98 billion – $3.03 billion. Its adjusted earnings per share is forecasted $2.09 – $2.25, down from a previously guided range of $2.72 – $2.88. In addition, AVYA forecasted revenue for its fiscal 2022 third quarter of between $685 million and $700 million, which is lower than FactSet’s consensus of $756.20 million. It forecasted adjusted EPS of 48 cents to 56 cents compared to FactSet consensus of 85 cents.

The $2.84 billion consensus revenue estimate for its fiscal year 2022, ending Sept. 30, 2022, represents a 4.4% year-over-year decline from the last year. It is no surprise that the company has surpassed the consensus revenue estimates in three of the trailing four quarters. The consensus loss per share estimate of $1.69 for the current  year represents a 745% year-over-year increase.

The stock has decreased 44.7% in price over the past month and 75.7% over the past year. It closed Friday’s trading session at $6.33. Its year-to-date decline translates to 69.4%.

AVYA’s POWR Ratings reflect this bleak outlook. It has an F grade for Sentiment and a grade D for Quality. Within the Technology-Communication/Networking industry, it is ranked #44 of 53 stocks. To see additional POWR Ratings (Stability, Growth, Momentum, and Value) for AVYA, click here.

PTON shares were trading at $15.76 per share on Monday afternoon, down $0.11 (-0.69%). Year-to-date, PTON has declined -55.93%, versus a -14.95% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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