Because the Federal Reserve sees two interest rate hikes coming by late 2023, a year earlier than anticipated, the stock market is expected to remain volatile. Furthermore, the reopening of the economy is making the prospects of several pandemic-hit industries look bright, leaving investors with plenty of options in which to  invest for quick and bigger returns.

With several stocks currently trading at sky-high valuations and with rising inflation being a major concern, the chances of fundamentally weak stocks suffering big losses in the near term are high.

Given this backdrop, we don’t think it makes sense to invest in Snap Inc. (SNAP) and NIO Inc. (NIO). They are trading at lofty valuations with insufficient fundamental strength and growth prospects. So, we think these stocks could be among the major losers in the near term.

Snap Inc. (SNAP)

SNAP operates as a camera company. It offers Snapchat, a camera application with functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight, that enable people to communicate through short videos and images. The Venice, Calif. company also provides Spectacles and advertising products, including AR and Snap ads.

A lawsuit was filed against SNAP on behalf of its shareholders who purchased its shares between March 2, 2017, and May 15, 2017. It was alleged that the company withheld potentially negative information from investors about competition with Instagram during its  IPO. Consequently, SNAP paid $187 million earlier this year to settle the shareholder lawsuit.

SNAP’s operating loss increased 6% year-over-year to $303.61 million for its fiscal first quarter, ended March 31, 2021. Its net loss came in at $286.88 million compared to $305.94 million in the prior-year period. Its liabilities increased 24.4% sequentially to $3.35 billion. The company’s loss per share was $0.19 compared to $0.21 in the year-ago period.

In terms of forward Price-to-Cash Flow, SNAP’s 470.77x is 4,421.7% higher than the 10.41x industry average. The stock’s 254.43x forward EV/EBITDA  is 2,322% higher than the 10.51x industry average.

SNAP’s EPS is expected to be negative for the current quarter ending June 30, 2021.

SNAP’s poor prospects are apparent in its POWR Ratings. The company has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has a D grade for Value, Stability and Quality. Click here to see the additional POWR ratings for SNAP (Momentum, Sentiment and Growth). It is ranked #68 of 71 stocks in the F-rated Internet industry.

NIO Inc. (NIO)

Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles (EVs). Its offerings include five-, six-, and seven-seater electric SUVs, and smart electric sedans. In addition, the company provides  energy and service packages to its users and offers power solutions, such as Power Home, which is a home charging solution.

On March 26, 2021, NIO announced that it would temporarily suspend vehicle production at its  JAC-NIO manufacturing plant in Hefei for five working days due to a semiconductor shortage. This suspension may have  adversely affected the company’s  production.

NIO’s adjusted loss from operations was ¥199.4 million ($30.4 million) for its  fiscal first quarter, ended March 31, 2021, compared to ¥1.54 billion ($237.49 million) in the prior-year period. Its adjusted net loss for the quarter was  ¥354.6 million ($54.1 million) compared to ¥1.66 billion ($256.25 million) in the year-ago period. Also, its adjusted loss per share was ¥0.23 ($0.04) compared to ¥1.60 ($0.25) in the same quarter, previous year.

In terms of forward Price/Sales, NIO’s 13.76x is 921% higher than the 1.35x industry. The stock’s 117.98x forward Price/Cash Flow  is 728% higher than the 14.25x industry average.

The company’s EPS is expected to remain negative in  2021 and 2022. The stock has declined 6.7% year-to-date to close yesterday’s trading session at $45.46.

NIO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. It has an F grade for Stability and Sentiment, and a D grade for Value and Quality.

Click here to see NIO’s ratings for Momentum and Growth as well. It is ranked #47 of 57 stocks in the Auto & Vehicle Manufacturers industry.

Click here to check out our Automotive Industry Report for 2021

SNAP shares were trading at $67.62 per share on Friday afternoon, down $0.03 (-0.04%). Year-to-date, SNAP has gained 35.05%, versus a 14.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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