The major stock market indexes rallied last week thanks to a solid start to the third-quarter earnings season. According to a Factset report, 80% of the S&P 500 companies that have so far reported…
third-quarter results have beaten EPS estimates, which is above the 76% five-year average.
However, rising Treasury yields, high inflation, and supply chain constraints continue to worry investors. In addition, The Goldman Sachs Group, Inc. (GS) cut its U.S. economic growth target to 5.6% for 2021 and 4% for 2022 due to an expected decline in fiscal support through the end of next year and a more delayed recovery in consumer spending than previously expected.
Against this backdrop, we think it could be wise to avoid Carvana Co. (CVNA – Get Rating), Robinhood Markets, Inc. (HOOD – Get Rating), and Royal Caribbean Cruises Ltd. (RCL – Get Rating). The valuations of these stocks are not in sync with their growth prospects. Moreover, these stocks are rated F (Strong Sell) in our POWR Ratings system.
Carvana Co. (CVNA – Get Rating)
CVNA, together with its subsidiaries, operates an e-commerce platform for buying and selling used cars in the United States. Its platform allows customers to research and identify many aspects of a vehicle prior to their purchase. CVNA is based in Phoenix, Ariz.
A lawsuit was filed against certain directors of CVNA in May 2020 and is pending to date. The plaintiff alleges that despite knowing that the company was well-positioned to weather the pandemic, its board of directors permitted a self-dealing transaction, which had the effect of benefitting the controllers at the company’s expense.
CVNA’s net sales came in at $3.34 billion, up 198.4% year-over-year. However, its total liabilities came in at $3.81 billion for the period ended June 30, 2021, versus $2.23 billion for the period ended December 31, 2020. Its cash and cash equivalents were $201 million compared to $301 million for the same period in the prior year. Also, its net cash used in operating activities came in at a $1.14 billion loss compared to a $175 million loss for the six months ended June 30, 2021.
In terms of forward P/B, CVNA’s 98.83x is 2,859.4% higher than the 3.34x industry average. Moreover, its forward P/S of 2x is 66% higher than the 1.21x industry average.
Analysts expect CVNA’s EPS to remain negative in its fiscal years 2021 and 2022. And its EPS is expected to decline at a rate of 210.5% per annum over the next five years. Also, the stock has lost 13% in price over the past month to close Friday’s trading session at $287.06.
CVNA’s POWR Ratings reflect its poor prospects. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an F grade for Value and Quality, and a D grade for Growth and Stability. Click here to access the additional POWR Ratings for CVNA (Momentum and Sentiment). CVNA is ranked #75 of 78 stocks in the Internet industry.
Robinhood Markets, Inc. (HOOD – Get Rating)
HOOD operates a financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. Its segments include Robinhood Financial LLC; Robinhood Securities, LLC; and Robinhood Crypto, LLC. HOOD is headquartered in Menlo Park, Calif.
For the second quarter, ended June 30, 2021, HOOD’s total net revenues increased 131.5% year-over-year to $565.33 million. However…
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