Due to the headwinds of high inflation and the Fed’s aggressive interest rate hikes, consumer sentiment has suffered. Although inflation has fallen considerably from last year’s highs, it remains elevated. A recession is likely this year, with more interest rate hikes likely ahead.
This is likely to impact consumer spending. To that end, investors could look to avoid fundamentally weak stocks Roku, Inc. (ROKU), Vinco Ventures, Inc. (BBIG), and AquaBounty Technologies, Inc. (AQB). These stocks have a ‘Strong Sell’ rating in our POWR Ratings system.
U.S. consumer spending fell in March, as evidenced by the decline in retail sales, which fell by 1% from the prior month while spending at general merchandise stores fell 3% sequentially.
The strong jobs growth in March and the elevated inflation will likely bring further rate hikes. Cleveland Fed President Loretta Mester has said that interest rates will need to rise above 5% given the stubborn inflation. This has led many analysts and economists to believe that the interest rate hikes could tip the economy into a recession this year.
Minutes from the Fed’s meeting in March showed that the Fed staff anticipates the recent banking crisis to cause a mild recession later this year, with a recovery over the subsequent two years. A recession will likely lead to a fall in discretionary spending affecting the profitability of consumer-facing companies.
Amid this backdrop, it could be wise for investors to avoid fundamentally weak stocks ROKU, BBIG, and AQB with Sell Signals.
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform. The company operates in two segments, Platform, and Devices. Its streaming platform allows users to find and access TV shows, movies, news, sports, and others.
In terms of trailing-12-month EBIT margin, ROKU’s negative 15.76% compares to the industry average of 8.14%. Its trailing-12-month Return on Common Equity of negative 18.40% compares to the industry average of 2.94%. Likewise, its negative 15.93% trailing-12-month net income margin compares to the 3.38% industry average.
For the fiscal year ended December 31, 2022, ROKU’s loss from operations came in at $530.89 million, compared to an income from operations of $235.10 million. The company’s net loss came in at $498.01 million, compared to a net income of $242.39 million from the prior-year period. Its net loss per share came in at $3.62, compared to its EPS of $1.71 in the year-ago period.
ROKU’s EPS for the quarter ended March 31, 2023, is expected to come in negative. Its revenue for the quarter that ended March 31, 2023, is expected to decline 3.7% year-over-year to $706.92 million. Over the past year, the stock has fallen 46.2% to close the last trading session at $58.92.
ROKU’s POWR Ratings reflect this negative outlook. It has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Consumer Goods industry, it is ranked last out of 53 stocks. The stock has an F grade for Growth and Sentiment and a D for Value, Momentum, Stability, and Quality. Click here to access all the POWR Ratings of ROKU.
Vinco Ventures, Inc. (BBIG)
BBIG develops and commercializes end-to-end consumer products in North America. It offers kitchenware, small appliances, toys, pet care, entertainment venue merchandise, and other products to retailers, mass-market retailers, and e-commerce sites; and personal protective equipment to governmental agencies, hospitals, and distributors.
In terms of trailing-12-month gross profit margin, BBIG’s negative 2.01% $124.11 million compares to the industry average of 50.22%. Its trailing-12-month Return on Total Assets of negative 213.78% compares to the industry average of $1.32%. Likewise, its trailing-12-month asset turnover ratio of 0.14x is 70% lower than the industry average of 0.47x.
BBIG’s gross deficit for the quarter that ended September 30, 2022, came in at $1.24 million, compared to a gross profit of $129.67 thousand in the prior-year quarter. The company’s operating loss widened 579.5% year-over-year to $173.12 million.
Its net loss attributable to BBIG narrowed 81.8% year-over-year to $98.98 million. Moreover, its net loss per share narrowed 94.7% year-over-year to $0.40.
Over the past year, the stock has fallen 84.8% to close the last trading session at $0.25.
The stock has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. It is ranked #56 in the same industry. In addition, it has an F grade for Value, Stability, and Quality and a D for Momentum and Sentiment.
To see BBIG’s rating for Growth, click here.
AquaBounty Technologies, Inc. (AQB)
AQB, a biotechnology company, focuses on enhancing productivity in the commercial aquaculture industry in the United States and Canada. It engages in genetic, genomic, and fish health and nutrition research activities. It also operates salmon farms using proprietary technology.
In terms of trailing-12-month asset turnover ratio, AQB’s 0.01x is 95.9% lower than the industry average of 0.35x.
AQB’s operating loss widened 1% year-over-year to $22.32 million for the fiscal year that ended December 31, 2022. The company’s net loss narrowed marginally year-over-year to $22.16 million. Additionally, its net loss per share narrowed 3.1% year-over-year to $0.31.
AQB’s EPS for the quarter ended March 31, 2023, is expected to come in at negative. Its revenue for the same quarter is expected to decline 22.1% year-over-year to $750K. Over the past nine months, the stock has fallen 64.9% to close the last trading session at $0.57.
AQB’s bleak fundamentals are reflected in its POWR Ratings. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
Within the Consumer Goods industry, it is ranked #51. The stock has an F grade for Momentum and Quality and a D for Growth, Value, and Stability. In total, we rate AQB on eight different levels. Beyond what we stated above, we have also given AQB a grade for Sentiment. To see all the ratings, click here.
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ROKU shares rose $0.58 (+0.98%) in premarket trading Friday. Year-to-date, ROKU has gained 46.07%, versus a 8.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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