Over the past few months, the stock market’s volatility has surged amid rising macroeconomic headwinds. The benchmark S&P 500 index recorded its worst April in 52 years, tumbling 4% over the last month. U.S. stocks closed out a brutal month in which investor worries were compounded by persistent inflation, the Fed’s tighter monetary policy, weak corporate earnings, COVID-19 case spikes in China, and a Russia-Ukraine war.
This week the Federal Reserve raised interest rates by half a percentage point to combat 40-year high inflation and restore price stability. This is the largest interest rate increase in 22 years. The aggressive increase and expectations of an economic slowdown are expected to be the main contributors to investors’ bearish sentiment.
Considering their history of losses, deteriorating fundamentals, and bleak growth prospects, we think it could be wise to avoid renowned stocks Block, Inc. (SQ), Royal Caribbean Cruises Ltd. (RCL), and Roblox Corporation (RBLX).
Block, Inc. (SQ)
San Francisco-based SQ is a financial technology company that creates tools to enable sellers to accept card payments. The company provides hardware products, including Magstripe reader, Contactless and chip reader, MasterCard and Visa chip cards, and Near Field Communication payments. It also provides software products that include Square Point of Sale, Square Appointments, Square for Retail, Square Invoices, and Square Contracts.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, SQ’s non-GAAP operating expenses increased 61.5% year-over-year to $1 billion, while its adjusted EBITDA declined marginally year-over-year to $184.18 million. Its operating loss was valued at $54.61 million for the fourth quarter. The company’s net loss attributable to common stockholders and net loss per share attributable to common stockholders amounted to $76.83 million and $0.17, respectively.
The $4.14 billion consensus revenue estimate for its fiscal year 2022 first quarter, ended March 31, 2022, represents an 18.1% year-over-year decline from the same period in 2021. The $0.20 consensus EPS estimate for the to-be-reported quarter represents a 51.9% year-over-year decline from its year-ago value.
The stock has declined 34.9% in price year-to-date and 53.8% over the past year. It closed yesterday’s trading session at $106.79.
SQ’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
SQ has an F grade for Stability. It has a D grade for Quality and Sentiment. Within the D-rated Financial Services (Enterprise) industry, it is ranked #95 of 108 stocks.
To see SQ’s POWR Ratings for Growth, Momentum, and Value, click here.
Royal Caribbean Cruises Ltd. (RCL)
RCL in Miami, Fla., operates as a cruise company worldwide. The company operates cruises under brand names, including the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises. RCL operates more than 61 ships in the cruise vacation industry. It also owns a joint venture interest in the Hapag-Lloyd Cruises and TUI Cruises.
In the first half of 2022, the resurgence of COVID-19 cases caused RCL some service disruptions and it canceled several cruises in the first quarter due to the impact of the omicron variant. This delayed the company’s return to profitability by a few months. In February, Royal Caribbean CFO said, “We are past COVID, but the cruise operator may not turn profitable this year as expected.”
RCL’s total cruise operating expenses increased 328.1% year-over-year to $1.14 billion in its fiscal 2021 fourth quarter, ended Dec. 31, 2021. The company’s operating loss came at $1.03 billion for the fourth quarter. Its net loss and net loss per share amounted to $1.36 billion and $5.33, respectively. Furthermore, its comprehensive loss was $1.32 billion, registering a 6.4% increase from the prior-year period.
The Street expects RCL’s loss per share to amount to $4.47 for its fiscal year 2022 first quarter, ended March 31, 2022. It is no surprise that the company has missed the consensus EPS estimates in three of the trailing four quarters.
Shares of RCL have declined 12.3% in price over the past six months and 7.4% over the past year. It closed yesterday’s trading session at $77.81.
RCL’s POWR Ratings reflect its poor prospects. The company has an overall rating of F, which translates to Strong Sell in our proprietary rating system.
The stock has an F grade for Stability and Value and a D grade for Sentiment and Quality. It is ranked #4 of 4 stocks in the F-rated Travel – Cruises industry.
To see additional POWR Ratings (Growth and Momentum) for RCL, click here.
Roblox Corporation (RBLX)
RBLX in San Mateo, Calif., operates an online entertainment platform. The company provides Roblox Studio, a free toolset to allow developers and creators to build, publish, and operate 3D content; Roblox Client, an application that allows exploring the 3D digital world; Roblox Cloud, which provides cloud-based services and infrastructure; and Roblox Education for learning experiences. It serves customers in the U.S., the United Kingdom, Canada, Europe, Asia-Pacific, and internationally.
Last October, RBLX priced a $1 billion offering of 3.9% senior notes, due 2030. The interest on these notes will be payable in cash semi-annually and will mature on May 1, 2030.The note offering is expected to increase the company’s debt and interest burden and reduce its cash balance.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, RBLX’s total cost and expenses increased 87.1% year-over-year to $708.42 million. Its loss from operations grew 103.7% year-over-year to $139.65 million, while its loss before income taxes rose 118.1% year-over-year to $146.60 million. Its adjusted EBITDA declined 25.6% year-over-year to $168.01 million. In addition, its net loss attributable to common stockholders increased 143.9% from its year-ago value to $143.30 million.
The $0.23 consensus loss per share estimate for the fiscal 2022 third-quarter ending Sept. 30, 2022, represents a 75.4% year-over-year decline from the same period in 2021. The stock has declined 64.7% in price year-to-date and 49.9% over the past year. RBLX closed yesterday’s trading session at $34.88.
RBLX’s POWR Ratings reflect this bleak outlook. The company has an overall D rating, which equates to Sell in our proprietary rating system.
RBLX has an F grade for Stability and Sentiment. Within the Entertainment – Toys & Video Games industry, it is ranked #20 of 23 stocks.
To see additional POWR Ratings (Momentum, Growth, Value, and Quality) for RBLX, click here.
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SQ shares were trading at $96.65 per share on Thursday morning, down $10.14 (-9.50%). Year-to-date, SQ has declined -40.16%, versus a -12.57% 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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