Despite concerns about the recent banking crisis, the Federal Reserve increased the benchmark federal funds rate by 0.25% and acknowledged the potential for the banking crisis to harm the weak economy. Moreover, the chances of a recession this year remain high.
Therefore, I think Snap Inc. (SNAP) and Peloton Interactive, Inc. (PTON) might be best sold short, liquidated, or avoided completely in 2023, considering their weak fundamentals.
The Federal Reserve on Wednesday enacted a quarter percentage point interest rate increase while expressing caution about the recent banking crisis. This is the central bank’s ninth instance of raising rates since March 2022, and it’s the first announcement made after the recent troubles in the banking industry.
The hike brings the benchmark federal funds rate to a target range of 4.75% to 5%.
Moreover, following the rate hike announcement, Larry Summers, former Treasury Secretary, said that despite the banking crisis in the US, more interest rate increases might be required to tackle inflation. He commented, “I probably would have allowed more room for concern about inflation and left the door a bit more open to multiple rate hikes, given the strength of the recent inflation data.”
Additionally, the economic outlook for this year has worsened due to high inflation, monetary tightening, and the recent banking crisis. Consumer and business confidence has fallen, and consumption and investment are slowing down, which presents a threat of recession this year.
Take a detailed look at the stocks mentioned above:
Snap Inc. (SNAP)
SNAP operates as a technology company in North America, Europe, and internationally. The company offers Snapchat, a visual messaging application with various tabs, such as camera, visual messaging, snap map, stories, and spotlight, that enable people to communicate visually through short videos and images.
SNAP’s forward EV/Sales of 3.76x is 101.2% higher than the industry average of 1.87x. Its forward Price/Sales multiple of 3.71 is 211% higher than the industry average of 1.19. Its forward EV/EBITDA multiple of 37.69 is 353.29% higher than the industry average of 8.32.
Its trailing-12-month CAPEX/Sales of 2.81% is 25.2% lower than the 3.75% industry average. Its trailing-12-month cash from operations of $184.61 million is 4.1% lower than the $192.55 million industry average.
SNAP’s operating loss increased significantly year-over-year to $287.60 million during the fourth quarter that ended December 31, 2022. The company’s adjusted EBITDA declined 28.6% year-over-year to $233.28 million.
Also, its net loss for the period came in at $288.46 million, compared to a net income of $22.55 million in the previous-year quarter. Its non-GAAP net income per share declined 36.4% year-over-year to $0.14.
Analysts expect SNAP’s revenue to decline 5.1% year-over-year to $1.01 billion for the current fiscal quarter ending March 2023. Its EPS is expected to be negative $0.01 for the same quarter. The company has failed to surpass revenue estimates in each of the trailing four quarters.
The stock has declined 69.5% over the past year to close its last trading session at $11.05. The stock has a 24-month beta of 1.73.
SNAP’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SNAP is also graded a D in Growth, Stability, and Sentiment. It is ranked #55 out of 59 stocks in the D-rated Internet industry.
In addition to the POWR Rating grades we’ve stated above, SNAP’s rating for Momentum, Value, and Quality can be seen here.
Peloton Interactive, Inc. (PTON)
PTON operates interactive fitness platform in North America and internationally. It operates through two segments: Connected Fitness Products and Subscription.
PTON’s forward EV/Sales multiple of 1.73 is 55.9% higher than the industry average of 1.11. Its forward Price/Sales multiple of 1.17 is 37.6% higher than the industry average of 0.85.
Its trailing-12-month CAPEX/Sales of 6.42% is 103.4% lower than the 3.15% industry average. Its trailing-12-month gross profit margin of 20% is 42.9% lower than the 34.99% industry average.
PTON’s total revenue declined 30.1% year-over-year to $792.70 million in the second quarter that ended December 31, 2022. Its gross profit declined 16.4% year-over-year to $235 million in the same quarter.
The company’s net loss and net loss per share came in at $335.40 million and $0.98, respectively. In addition, its adjusted EBITDA loss came in at $122.40 million.
Analysts expect PTON’s revenue to decline 26.4% year-over-year to $710.03 million in the fiscal third quarter ending March 2023. Its EPS is expected to be negative $0.51 for the same quarter. The company has failed to surpass the consensus revenue estimates in three of the trailing four quarters.
The stock has declined 66.4% over the past year, closing the last trading session at $9.26. The stock has a 24-month beta of 2.04.
PTON’s grim prospects are reflected in its POWR Ratings. The stock has an overall F rating, which translates to a Strong Sell in our POWR Ratings system.
PTON has an F grade for Stability and Sentiment and a D for Value and Quality. It is ranked #51 out of 54 stocks in the Consumer Goods industry.
To see the additional POWR Rating for Growth and Momentum for PTON, click here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up like the ones discussed in this article. But most will tumble as the bear market claws ever lower this year.
That is why you need to discover the “REVISED: 2023 Stock Market Outlook” that was just created by 40 year investment veteran Steve Reitmeister. There he explains:
- 5 Warnings Signs the Bear Returns Starting Now!
- Banking Crisis Concerns Another Nail in the Coffin
- How Low Will Stocks Go?
- 7 Timely Trades to Profit on the Way Down
- Plan to Bottom Fish For Next Bull Market
- 2 Trades with 100%+ Upside Potential as New Bull Emerges
- And Much More!
You owe it to yourself to watch this timely presentation before placing your next trade.
REVISED: 2023 Stock Market Outlook >
Want More Great Investing Ideas?
REVISED: 2023 Stock Market Outlook (includes top 7 picks)
SNAP shares were trading at $11.50 per share on Thursday afternoon, up $0.45 (+4.07%). Year-to-date, SNAP has gained 28.49%, versus a 4.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More...
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