The technology sector has been one of the biggest beneficiaries of business, work   and lifestyle changes caused by the COVID-19  pandemic. With the continued spread of the virus and the recent identification of a new, more contagious, strain, society is depending increasingly on technological solutions to lockdown limitations.

In fact, many industry experts believe that the demand for technology solutions will not decrease even in a post-pandemic world because it would not make sense for individuals and businesses to discard the new efficiencies technology has created. However, not every technology company is expected to do well in the coming months.

Some companies have either hit a growth ceiling or are being plagued by lawsuits or other bad news. These stocks have been facing price declines for some time and there appears to be no ready catalyst to help them recover in the near term.

Zoom Video Communications (ZM), SolarWinds Corporation (SWI), and Sabre Corporation (SABR) are three companies that have unique problems. And, in the absence of near-term upside potential, we believe it is  wise to avoid these stocks for now.

Zoom Video Communications (ZM)

ZM provides an online platform for video calls, voice chat, and text chat. The company’s cloud platform also enables content sharing. ZM’s stock has lost 26.6% since hitting its high in October.

ZM is currently facing a lawsuit that alleges that the company has been invading user’s privacy and misrepresenting its security protocol. Privacy concerns are a major issue for technology companies, and ZM may need to bolster its  privacy offerings in the future.

In its last reported quarter, , ZM  saw an increase in revenue of 367% year-over-year. However, the sharp revenue increase was largely driven  by the need for remote working due to the pandemic. The company may face a decline in revenue as the pandemic ebbs and the need for video conferencing retreats.

ZM’s poor prospects are also apparent in its POWR Ratings. It has a “Sell” for overall POWR Rating and an “F” for Trade Grade. It is ranked #37 of 65 stocks in the Technology – Services industry.

SolarWinds Corporation (SWI)

SWI is involved in developing information technology solutions. The company’s services include network performance monitor, network bandwidth analyzer pack, and network configuration manager. SWI’s stock has declined 38.4% over the past month.

SWI was  recently the victim of a major security breach that impacted its customers including the U.S. Government. Even though SWI has released an update that protects against the malware, it is unclear how the hit to its  reputation will affect the company.

For the quarter ended September 30, 020, the company recorded an 8.5% rise in revenue compared to the same period last year. However, SWI  may lose out on future revenue due to the security breach that affected its services.

SWI’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of “Sell” with an “F” for Trade Grade. It is ranked #43 of 51 stocks in the Software – Business industry.

Sabre Corporation (SABR)

SABR provides technology solutions for the travel and tourism industry worldwide. The company operates primarily in the hospitality solutions and travel network segments. SABR’s stock has retreated 47.3% over the past year.

SABR has rallied approximately 200% from the low it hit last year. However, analysts don’t expect any further upside in the stock. The travel industry is yet to recover from the pandemic, so it is best to avoid this stock in January.

For the quarter ended September 30, 2020, the company’s revenue declined 72.2% compared to the same period last year. SABR faced an operating loss of $233 million during the same period.

SABR’s revenue is expected to decline 65.1% for the quarter ended December 31, 2020 and 37.1% for the quarter ended March 31, 2021. The company’s EPS is expected to decline 512.5% for the quarter ended December 31, 2020 and 21.8% over the next five years.

SABR’s poor prospects are also apparent in its POWR Ratings. It has a “Sell” for overall POWR Rating and an “F” for Buy & Hold Grade. It is ranked #38 of 67 stocks in the Internet industry.

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ZM shares were trading at $346.93 per share on Wednesday morning, down $13.90 (-3.85%). Year-to-date, ZM has gained 2.85%, versus a 0.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaryaman Aashind

Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks. More...

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