It has been a chaotic year for IPOs, with many falling flat after their first trading days as investors remain worried about stock market volatility. As the stock market has entered a historically volatile October, investors grapple with a wide range of concerns, including sustained high inflation and rising bond yields.
Furthermore, with the third-quarter earnings season kicking off soon, the market could witness even more uncertainty. Therefore, we believe investors should avoid fundamentally unstable recently listed stocks such as Toast, Inc. (TOST), Duolingo, Inc. (DUOL), and Sovos Brands, Inc. (SOVO). Their current price levels do not justify their growth prospects.
However, DoubleDown Interactive Co. Ltd. (DDI) has exhibited positive momentum over the past month and is fundamentally well-positioned to deliver solid returns in upcoming months. So, it could be a solid pick now.
Stock to Buy:
DoubleDown Interactive Co. Ltd. (DDI)
Headquartered in South Korea, DDI develops and publishes digital games for casual players on mobile and web-based platforms. The company offers DoubleDown Casino, DoubleDown Classic, DoubleDown Fort Knox, and Ellen’s Road to Riches games. Its games are primarily distributed, marketed, and promoted through third-party platform providers. The company made its stock market debut on September 01, 2021.
Last month, DDI launched Undead World: Hero Survival, a zombie apocalypse RPG with a combination of idle gameplay and character collecting and upgrading. This launch marks a strategic departure for the company that has traditionally specialized in the casino genre.
DDI’s revenue came in at $93.23 million in the second quarter that ended June 29, 2021. Its operating income came in at $21.73 million. The company reported a net income of $18.42 million, while its EPS amounted to $0.37 over this period. The stock has gained 9.5% over the past month.
DDI’s strong fundamentals are reflected in its POWR ratings. The stock has an overall grade of B, which equates to a Buy rating in our POWR Ratings system. DDI also has an A grade for Value, and a B for Sentiment and Quality. The stock is ranked #2 out of 24 stocks in the Entertainment – Toys & Video Games industry.
Beyond the POWR Ratings grades I have just highlighted, you can see DDI’s grades for Growth, Stability, and Momentum here.
Stocks to Sell:
Toast, Inc. (TOST)
TOST provides a cloud-based technology platform to the restaurant industry in the United States and Ireland. In addition, it offers Toast Online Ordering & Toast TakeOut app, a software that connects online channels, point of sale, menu management, and kitchen operations in real-time. The stock made its stock market debut on September 22, 2021.
TOST’s trailing-12-months operating loss came in at $152.39 million. The company reported a trailing-12-months net loss of $352.72 million. Its trailing-12-months operating expenses amounted to $402.59 million.
In terms of trailing-12-months EV/Sales, TOST is currently trading at 22.53x, 411.2% higher than the industry average of 4.41x. Also, in terms of its trailing-12-months Price/Sales, the stock is currently trading at 9.15x, 115.4% higher than the industry average of 4.25x.
TOST’s POWR ratings are consistent with this bleak outlook. The company has an overall grade of D, which translates to a Sell rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TOST also has a D grade for Value and Stability. Within the D-rated Software-Business industry, it is ranked #46 out of 61 stocks.
To see additional grades for TOST, including Growth, Quality, Momentum, and Sentiment, click here.
Duolingo, Inc. (DUOL)
DUOL develops a language-learning website and mobile app in the United States and China. The company offers courses in 40 different languages and also provides a digital language proficiency assessment exam. DUOL went public on July 28, 2021.
For the second quarter that ended June 30, 2021, DUOL’s operating expenses increased 53.4% year-over-year to $43.14 million. Its operating loss came in at $478 thousand, compared to an operating profit of $82 thousand in the prior-year quarter. The company reported a net loss of $176 thousand, compared to a net profit of $40 in the second quarter of 2020. Its loss per share amounted to $0.01 over this period.
Analysts expect its EPS to remain negative in the current year and next year. The stock has declined 4% over the past month.
In terms of forward EV/Sales, DUOL is trading at 22.34x, 1469.6% higher than the industry average of 1.42x. In addition, in terms of its forward Price/Sales, the stock is currently trading at 24.42x, substantially higher than the industry average of 1.19x.
DUOL’s weak fundamentals are reflected in its POWR ratings. The stock also has a D grade for Value, Growth, and Stability. In the D-rated Software – Application industry, it is ranked #105 out of 156 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see DUOL’s grades for Momentum, Sentiment, and Quality here.
Sovos Brands, Inc. (SOVO)
SOVO, through its subsidiaries, manufactures and distributes food products in the United States. Dinners & Sauces; and Breakfast & Snacks are the two operational segments of the company. The company caters primarily to traditional supermarkets, mass merchants, warehouse clubs, wholesalers, specialty food distributors, military commissaries, drug store chains, dollar stores, and e-commerce retailers. The company made its stock market debut on September 23, 2021.
SOVO’s trailing-12-months operating expenses came in at $161.89 million. The company reported a trailing-12-months net interest income of negative $21.34 million. Additionally, its trailing-12-months investing cash flow stood at a negative $150.29 million.
In terms of trailing-12-months EV/Sales, SOVO’s 3.27x is 61.4% higher than the industry average of 2.02x. In addition, its trailing-12-months Price/Cashflow of 28.96x is 103.6% higher than the industry average of 14.23x.
SOVO’s poor prospects are also apparent in its POWR Ratings. The stock has an overall grade of D rating, which equates to a Sell rating in our proprietary ratings system.
It also has a D grade for Quality and Momentum. SOVO is ranked #74 out of 84 stocks in the C-rated Food Makers industry.
Click here to see additional grades for SOVO (Growth, Value, Stability, and Sentiment).
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TOST shares were trading at $52.05 per share on Friday afternoon, down $0.95 (-1.79%). Year-to-date, TOST has declined -16.73%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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|TOST||Get Rating||Get Rating||Get Rating|
|DUOL||Get Rating||Get Rating||Get Rating|
|SOVO||Get Rating||Get Rating||Get Rating|
|DDI||Get Rating||Get Rating||Get Rating|