These Once-Hot Stocks Are Down More Than 50% - Time to Buy?

NYSE: SHOP | Shopify Inc. Cl A News, Ratings, and Charts

SHOP – Concerns over the rising macroeconomic headwinds have led to a massive market sell-off over the past couple of months. This has led to once investor favorite stocks, Shopify Inc. (SHOP), Block, Inc. (SQ), and Roblox Corporation (RBLX), dropping more than 50% year-to-date. However, given the increasing odds of a recession and weak fundamentals of these companies, is it worth scooping up these stocks at their current price levels? Read on to learn more….

The rising macroeconomic headwinds have resulted in a massive sell-off in equities over the past couple of months. The most widely followed stock market benchmark, the S&P 500, experienced its worst first half in more than 50 years.

The Federal Reserve’s aggressive interest rate hikes to combat inflationary pressure and the rising odds of a recession have contributed to bearish investor sentiment. Minutes from the Fed’s June meeting indicated another rate hike of up to 75 basis points this month.

In addition, Fed Chairman Jerome Powell has firmly reiterated that interest rate hikes are unavoidable in the upcoming quarters to bring about price stability. This is likely to keep the stock market volatile.

Shopify Inc. (SHOP), Block, Inc. (SQ), and Roblox Corporation (RBLX), which were once investors’ top choices, lost more than half of their market values year-to-date. However, given their deteriorating fundamentals and bleak growth prospects, we do not think it would be wise to buy these stocks even at the current attractive price levels.

Shopify Inc. (SHOP)

Headquartered in Ottawa, Canada, SHOP is a cloud-based, multi-channel commerce platform that offers subscription and merchant solutions to small and medium-sized businesses. Its platform enables merchants to display, manage, market, and sell their products through various sales channels.

In the fiscal first quarter (ended March 31, 2022), SHOP’s operating expenses increased 67.3% year-over-year to $735.61 million. Its operating loss amounted to $97.98 million compared to an operating income of $118.90 million in the year-ago period. 

The company’s net loss and net loss per share attributable amounted to $1.47 billion and $11.70, compared to a net income and EPS of $1.25 billion and $9.94, respectively.

Analysts expect SHOP’s EPS for the fiscal 2022 second quarter (ending June 2022) to come in at $0.03, representing an 85.7% decline from the same period in 2021. SHOP has declined 74.3% year-to-date to close the last trading session at $35.33.

SHOP’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, 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.

It has an F grade for Stability and a D for Growth, Value, Sentiment, and Quality. It is ranked last out of 30 stocks in the F-rated Internet – Services industry.

Click here to see SHOP’s rating for Momentum.

Block, Inc. (SQ)

SQ creates tools that enable sellers to accept card payments and provides reporting, analytics, and next-day settlement. It includes hardware products, including a Magstripe reader, a Contactless and chip reader, and Square Stand. It also provides software products that include Square Point of Sale, Square Appointments, Square for Retail, Square Invoices, and Square Contracts.

SQ’s net revenue decreased 21.7% year-over-year to $3.96 billion for the fiscal first quarter (ended March 31, 2022). The company’s net loss came in at $204.20 million compared to an income of $39 million in the prior-year quarter. Also, its loss per share came in at $0.38 compared to an EPS of $0.08 in the year-ago period.

Street expects SQ’s EPS to amount to $0.17 for the second quarter (ended June 2022), representing a decrease of 74.9% from the prior-year period. Its consensus revenue estimate is expected to decline 6.9% year-over-year to $4.36 billion for the same period.

Shares of SQ have declined 57.5% year-to-date to close the last trading session at $68.63.

SQ’s POWR Ratings reflect its poor prospects. The company has an overall rating of F, equating to a Strong Sell in our proprietary rating system.

SQ has an F grade for Stability and a D grade for Growth, Sentiment, and Quality. It is ranked #106 of 110 stocks in the Financial Services (Enterprise) industry.

To see additional ratings (Value and Momentum) for SQ, click here.

Roblox Corporation (RBLX)

RBLX operates a human co-experience platform, where users interact with each other to play, explore and develop user-generated and 3D experiences for free. Its platform is powered by user-generated content that draws inspiration from gaming, entertainment, social media, and toys.

For its fiscal first quarter ended March 31, 2022, RBLX’s loss from operations widened 12.2% year-over-year to $151.61 million. Its consolidated net loss came in at $162.02 million, up 19% from the prior-year period. Also, its adjusted EBITDA decreased 64.3% year-over-year to $67.93 million. The company’s loss per share narrowed 41.3% from the year-ago value to $0.27.

The Street expects the consensus loss per share estimate for the fiscal second quarter (ended June 2022) to decrease 5.9% year-over-year to $0.26, while the consensus revenue estimate is expected to decline 4.6% from its prior-year value to $635.19 million.

The stock has slumped 61.7% year-to-date to close the last trading session at $39.52.

RBLX’s POWR Ratings are consistent with this bleak outlook. It has an overall D rating, equating to Sell in our proprietary rating system. The stock has an F grade for Stability and Sentiment and a D for Value and Momentum. It is ranked #20 out of 21 stocks in the Entertainment – Toys & Video Games industry.

To see RBLX’s ratings for Growth and Quality, click here.

SHOP shares were trading at $35.44 per share on Friday morning, up $0.11 (+0.31%). Year-to-date, SHOP has declined -74.27%, versus a -17.85% 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...

More Resources for the Stocks in this Article

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