The Labor Department recently reported an 8.3% year-over-year increase in Consumer Price Index (CPI) in August. The core CPI, which excludes the highly volatile energy and food prices, increased 6.3% year-over-year, up from 5.9% in both June and July, signaling the stubbornness of the inflation the Fed has been striving to tame.

The newly released inflation data has primarily hurt investor optimism over easing inflation and less aggressive interest rate hikes. The CPI data has weighed heavily on investor sentiments, with the S&P 500 and Dow Jones declining 4.3% and 3.9%, respectively, in the last trading session on fears of a severe-than-anticipated economic slowdown.

This negative sentiment among consumers and investors has also spilled over to businesses that have recently reported significant revenue declines. Such companies have been forced to downsize to stay afloat amid challenges on multiple macroeconomic fronts and the imminent economic slowdown. According to a recent survey by PwC, more than half of all U.S. businesses intend to lay off workers as they prepare for a downturn in the economy.

Hence, given the massive layoffs announced recently and bleak growth prospects, we think it would be wise to avoid fundamentally weak stocks Shopify Inc. (SHOP), Coinbase Global, Inc. (COIN), and Robinhood Markets, Inc. (HOOD).

Shopify Inc. (SHOP)

SHOP offers a cloud-based, multi-channel commerce platform for small and medium-sized businesses. The company offers subscription solutions and merchant solutions. SHOP’s platform includes a mobile-optimized checkout system to enable merchants’ consumers to buy products over mobile Websites.

In July, SHOP announced that it is considering cutting 1000 jobs to lay off 10% of its workforce. The job cuts mainly were from the sales, accounting, and recruiting departments. In addition to the July layoffs, another 70 people have been let go in August.

In a memo to employees, CEO Tobi Lutke admitted to and apologized for overestimating the extent of the pandemic-driven e-commerce boom. Amid a broader pullback in online spending, SHOP would cut several “over-specialized and duplicate roles, as well as some groups that were convenient to have but too far removed from building products.”

During the second quarter of fiscal 2022 ended June 30, SHOP reported an adjusted operating loss of $41.77 million, compared to an adjusted operating income of $236.80 million during the prior-year quarter. The company reported an adjusted net loss of $38.45 million and $0.03 per share, compared to an adjusted net income of $879.09 million and $0.22 per share in the prior-year period, respectively.

Analysts expect SHOP to report a loss per share of $0.07 for the current quarter (ending September 2022) and $0.10 for the current year (ending December 2022), respectively. The stock has declined 36.2% over the past six months and 77.9% over the past year to close the last trading session at $32.70.

SHOP’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SHOP has a grade of F for Sentiment and D for Growth, Value, Stability, and Quality. It is ranked #29 among 30 stocks in the F-rated Internet – Services industry. Click here to see all POWR Ratings for SHOP.

Coinbase Global, Inc. (COIN)

COIN is a fintech company that provides end-to-end financial infrastructure and technology for the global crypto economy. The company offers financial accounts for retail crypto users, a liquid marketplace to institutions for crypto transactions, and technology and services for ecosystem partners.

On September 12, 2022, reports emerged that the brother of a former COIN product manager pleaded guilty to a wire fraud conspiracy charge in what U.S. prosecutors have called the first insider trading case involving cryptocurrency.

On June 14, COIN announced an 18% reduction in its workforce by laying off approximately 1,100 employees. It came as volatile crypto markets have lost more than $2 trillion in valuation since 2021, and COIN CEO, Brian Armstrong, warned of a recession and a crypto winter on the horizon.

In the fiscal 2022 second quarter ended June 30, COIN’s total revenue decreased 63.7% year-over-year to $808.33 million. During the same period, the company reported an operating loss of $1.04 billion, compared to an income of $874.73 in the previous-year period.

In addition, COIN’s net loss attributable to common shareholders came in at $1.1 billion and $4.98 per share, compared to a net income of $1.59 billion and $6.42 per share in the previous-year quarter, respectively.

Analysts expect COIN’s revenue for the fiscal ending December 2022 to decrease 56.9% year-over-year to $3.38 billion. Also, the company is expected to report a $6.61 per share loss for the current year. The stock has plunged 50.9% over the past six months and 69% over the past year to close the last trading session at $75.25.

It’s no surprise that COIN has an overall rating of F, which translates to Strong Sell in our POWR Ratings system. It also has a grade of F for Growth, Value, Stability, and Sentiment.

It is ranked #153 among 154 stocks in the F-rated Software – Application industry. To see the additional POWR Ratings for Momentum and Quality for COIN, click here.

Robinhood Markets, Inc. (HOOD)

HOOD is a financial services platform that allows users to invest in stocks, exchange-traded funds (ETFs), options, and cryptocurrencies. The company also offers learning and education solutions, which include Robinhood Snacks, Robinhood Learn, Newsfeeds, Robinhood lists and alerts, and First trade recommendations.

On August 8, 2022, HOOD announced its second round of layoffs this year, slashing 23% of its headcount by letting go of 800 employees, with marketing, operations, and product management functions of the firm being the most impacted. This move came amid a drop in revenue as its Monthly Active User (MAU) count dropped by 2 million and Assets Under Custody (AUC) dipped by 31%, both on a sequential basis.

For the second quarter of fiscal 2022 ended June 30, HOOD’s net revenues declined 43.7% year-over-year to $318 million. Its total operating expenses increased 21.8% year-over-year to $610 million during the same period. The company reported a net quarterly loss of $295 million, which translated to a loss per share of $0.34.

HOOD’s EPS is expected to remain negative for fiscal 2022 and 2023. Analysts expect its revenue for fiscal 2022 to decline 24.7% year-over-year to $1.37 billion. The stock has lost 74.4% over the past year to close the last trading session at $10.41.

HOOD’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. HOOD has also been graded F for Quality and D for Value, Stability, and Sentiment. HOOD is ranked #144 among 154 stocks in the Software – Application industry. 

We’ve also graded HOOD for Growth and Momentum. Click here to access all ratings for HOOD.

SHOP shares were trading at $33.69 per share on Wednesday afternoon, up $0.99 (+3.03%). Year-to-date, SHOP has declined -75.54%, versus a -16.30% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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