With the Fed indicating to remain hawkish to fight inflation, the stock market ended last week with a loss, continuing its losing streak for three straight weeks. This, along with the economic contraction for two consecutive quarters of the year, increases the odds of a recession.
According to Peter Boockvar, Chief Investment Officer at Bleakley Financial Group, the latest data on housing and manufacturing show why the United States will not be able to avoid a recession. The National Association of Home Builders/Wells Fargo Housing Market Index fell into negative territory in August.
A better-than-expected August jobs report is unlikely to benefit risky markets, as it could further encourage the Fed to tighten its policy.
Given this backdrop, fundamentally weak stocks PayPal Holdings Inc. (PYPL), Warner Bros. Discovery Inc. (WBD), and Farfetch Limited (FTCH) could tumble further. These stocks were recently downgraded to Strong Sell or Sell in our proprietary POWR Ratings system. So, we think they are best avoided now.
PayPal Holdings Inc. (PYPL)
PYPL operates a technology platform that facilitates digital payments for merchants and consumers worldwide. It offers payment services under the brand names PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, and Paidy.
During the second quarter ended June 30, 2022, PYPL’s revenue increased 9.1% year-over-year to $6.81 billion. Its operating income declined 32.2% from the year-ago value to $764 million. The company reported a net loss of $341 million, compared to a net income of $1.18 billion in the prior-year quarter. Its loss per share amounted to $0.29.
The stock has declined 68.1% over the past year and 51.7% year-to-date.
PYPL's POWR Ratings are consistent with this bleak outlook. The stock’s overall rating was recently downgraded to D, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PYPL has been graded a C grade for Value. Within the D-rated Consumer Financial services industry, it is ranked #38 of 48 stocks. To see additional POWR Ratings for PYPL, click here.
Warner Bros. Discovery Inc. (WBD)
WBD, a media company, distributes content in approximately 50 languages worldwide through various distribution platforms. It also produces, develops, and distributes feature films, television, gaming, and other content in physical and digital formats via basic networks, direct-to-consumer or theatrical distribution, TV content, and game licensing.
WBD’s revenue increased 220.9% year-over-year to $9.83 billion for the second quarter ended June 30, 2022. However, its operating loss came in at $3.64 billion, compared to an operating income of $779 million in the prior-year quarter. The company reported a net loss of $3.42 billion, compared to a net income of $672 million in the second quarter of 2021. In addition, its loss per share amounted to $1.50.
The company’s EPS is expected to decline 133.3% for the current quarter and 98.9% for the current year. The stock has declined 54.9% over the past year and 18.4% over the past month.
WBD's weak fundamentals are reflected in its POWR Ratings. The stock’s overall rating was recently downgraded to an F, equating to a Strong Sell. Additionally, it has a D grade for Growth, Quality, and Sentiment. WBD is ranked #16 of 17 stocks in the F-rated Entertainment- Media Producers industry.
In addition to the POWR Ratings grades I have just highlighted, you can see the WBD rating for Momentum, Stability, and Value here.
Farfetch Limited (FTCH)
FTCH and its subsidiaries operate an online marketplace for high-end fashion goods in the United States, the United Kingdom, and worldwide. Its business is divided into three segments: Digital Platform; Brand Platform; and In-Store.
For the second quarter ended June 30, 2022, FTCH’s revenue increased 10.7% year-over-year to $579.35 million. Its operating loss surged 11.5% from the prior-year quarter to $167.62 million. Its adjusted loss per share increased 23.5% from the year-ago value to $0.21. In addition, the company’s adjusted EBITDA loss increased 17.7% year-over-year to $24.22 million.
The company’s EPS is expected to decline 61.8% and 1.1% in the current year and next year. The stock has declined 78.4% over the past year and 71.9% year-to-date.
FTCH’s poor prospects are also apparent in its POWR Ratings. The stock’s overall rating was recently downgraded to an F, which equates to a Strong Sell in our proprietary rating system.
It also has an F grade for Growth and a D for Stability and Value. FTCH is ranked #61 of 65 stocks in the F-rated Internet industry. Click here to see the additional POWR Ratings for FTCH (Quality, Momentum, and Sentiment).
PYPL shares were trading at $91.63 per share on Tuesday afternoon, up $0.50 (+0.55%). Year-to-date, PYPL has declined -51.41%, versus a -17.15% 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.
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