Stay-at-home stocks have paid investors handsomely over the last year thanks to the COVID-19 pandemic. The dependence on these companies by businesses and individuals seeking to stay afloat and connected has helped their stock prices skyrocket.
However, rapid progress on the coronavirus vaccination front has led to much subdued performance by these stocks so far this year. That’s because the demand for solutions offered by these companies is gradually declining with vaccinated people spending less time in their homes. According to data collected by Bloomberg, more than 797 million doses of vaccines have been administered around the world, at a rate of roughly 18 million doses per day. The United States alone has so far administered around 190 million doses, vaccinating almost 29.6% of its entire population.
Investors’ positive sentiment regarding the steps back toward normal driven by the vaccinations is causing a pullback in remote-working stocks, as evidenced by Direxion Work From Home ETF’s (WFH) 6.2% loss over the past two months. Another major reason for this pullback is the rapid rise in Treasury yields. Equity markets typically do not respond favorably to rising Treasury yields. Hence, we think stay-at-home companies Zoom Video Communications, Inc. (ZM), Teladoc Health, Inc. (TDOC), Fastly, Inc. (FSLY), and Peloton Interactive, Inc. (PTON) are now best avoided.
Zoom Video Communications, Inc. (ZM)
ZM provides a video-first communication platform and Web conferencing services worldwide. The company offers a cloud-native platform and a software-based conference room system, which enable users to easily conduct meetings. It serves primarily the education, finance and government sectors.
Over the past couple of months, certain officers and directors of ZM have come under scrutiny by various law firms. They allege that the defendants made materially misleading statements and failed to disclose that ZM possesses inadequate data privacy and security measures. They further allege that contrary to ZM’s assertions, the company’s video communications service was not end-to-end encrypted, and usage of its video communications services is likely to decline in near future. Defending against these allegations is expected to create instability in the normal functioning of the business.
For the fourth quarter ended, January 31, 2021, ZM reported revenues of $882.49 million and an operating income of $256.12 million. It has also reported net income of $260.61 million, with an EPS of $0.87. The stock has lost 34.6% over the past six months.
ZM’s POWR Ratings do not reflect a positive outlook. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
ZM has a D grade for Stability and Value. It is currently ranked #41 in the 77-stock C-rated Technology – Services industry.
In total, we rate ZM on eight different levels. Beyond what we’ve stated above, we have also given ZM grades for Momentum, Sentiment, Quality, and Growth. Get all ZM’s ratings here.
Teladoc Health, Inc. (TDOC)
Based in New York, TDOC is a global leader in providing whole-person virtual care services on a business-to-business (B2B) basis to its clients. The company uses proprietary health signals and personalized interactions to drive better health outcomes across the full continuum of care, at every stage in a person’s health journey.
TDOC’s revenues have increased 145% year-over-year to $383.32 million in the fourth quarter ended December 31, 2020. However, the company was not able to translate its top-line growth into overall profitability. Its loss from operations has increased 3014.6% from its year-ago value to $458.51 million, while its net loss per share has risen 1080.8% to $3.07 over the same period. As of December 31, 2020, TDOC had an accumulated deficit of $992.70 million.
Analysts expect TDOC’s loss per share to increase 57.5% year-over-year to $0.63 in the current quarter (ending March 31, 2021). The company missed the Street’s EPS estimates in each of the trailing four quarters. The stock has lost 16.5% over the past six months.
TDOC’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. TDOC also has an F grade for value and Sentiment, and a D for Stability and Quality. It is currently ranked #79 in the 79-stock C-rated Medical – Services industry.
We have also given TDOC grades for Momentum and Growth. Get all TDOC’s ratings here.
Fastly, Inc. (FSLY)
FSLY is a real-time content delivery network (CDN) company. The company provides services in the delivery, security, streaming media, e-commerce, and private CDN areas. With FSLY, users can manage traffic spikes and mitigate security threats. It operates an edge cloud platform for its primary business services and works with Alphabet’s (GOOG) Google Cloud Platform to extend infrastructure and application logic to its users.
FSLY witnessed accelerated growth in enterprise customers during the fourth quarter, ended December 31, 2020. Its total customer count increased 19.5% from the previous year to 2,084 in its fiscal year 2020. However, lower-than-expected usage from its largest customer, TikTok owner ByteDance, was its main headwind during the quarter. Though the company believes that there’s a possibility that some of the ByteDance users its platform lost could return, investors should not count on that. Its operating loss has increased 307.1% year-over-year to $57 million, while its loss per share has risen 166.7% from the year-ago value to $0.40 over the same period.
FSLY went public in May 2019, and the stock has lost 45.5% over the past six months. Also, the company is still unprofitable and its loss per share has consistently widened in each of the trailing four quarters. A consensus loss per share estimate of $0.11 for the current quarter, ending March 31, 2020, indicates an 83.3% increase year-over-year.
FSLY’s poor prospects are apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. FSLY has an F grade for Value, Quality, and Sentiment. It is currently ranked #77 in the Technology – Services industry.
Click here to get additional POWR ratings for FSLY (Growth, Stability, and Momentum).
Peloton Interactive, Inc. (PTON)
PTON is an interactive fitness platform that pioneers connected, technology-enabled fitness and the streaming of immersive, instructor-led boutique classes to its members. The company operates through three segments: connected fitness product, subscription, and other segments consisting of Peloton branded apparels.
Earlier this month, PTON closed its acquisition of Precor for $420 million in cash. With the acquisition, PTON is expected to establish its U.S. manufacturing capacity, while enhancing R&D capabilities and accelerating the growth of commercial verticals. The acquisition is expected to initially lead to a huge cash outflow.
However, despite these developments, PTON’s second quarter (ended December 31, 2020) results are far from impressive. Its income from operations has decreased 14.7% sequentially to $58.80 million in the second quarter. Its net income has declined 8.2% from the previous quarter to $63.60 million, while EPS has fallen 10% to $0.18.
Analysts expect PTON’s EPS to decline at a CAGR of 6.1% over the next five years. They further expect the company’s EPS to decrease 92.6% year-over-year in the current quarter, ending June 30, 2021. The company is expected to report a loss per share of $0.12 in the about-to-be reported quarter (ended March 31). The stock has lost 21.6% year-to-date.
PTON has an overall POWR rating of D that translates to Sell in our proprietary rating system. PTON has an F grade for Value and Stability, and a D for Sentiment. It is currently ranked #59 in the 68-stock C-rated Consumer Goods industry.
We also have given PTON grades for Growth, Quality, and Momentum. Get all PTON’s ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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ZM shares were trading at $342.19 per share on Tuesday afternoon, up $20.68 (+6.43%). Year-to-date, ZM has gained 1.44%, versus a 10.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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