3 Falling Stock to Think About Selling Short Right Now Worries about sky-high inflation, the Federal Reserve's hawkish stance, and recession prospects have spurred market sell-off lately. Moreover, investors expect increased market volatility as analysts cut down their earnings estimates....
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Worries about sky-high inflation, the Federal Reserve's hawkish stance, and recession prospects have spurred market sell-off lately. Moreover, investors expect increased market volatility as analysts cut down their earnings estimates. Given the uncertain market conditions, fundamentally weak and losing stocks Snap (SNAP), Allegiant Travel (ALGT), and Cardiff Oncology (CRDF) could be great candidates to sell short. Read on….
During the annual policy speech at Jackson Hole last month, Fed Chairman Jerome Powell indicated that the Fed would continue tightening its policy to fight the record-high inflation. He warned that the economy would face "some pain," prompting markets to sell off on increased recession fears.
Furthermore, investors expect more market volatility as Wall Street analysts cut their corporate-earnings expectations. Morgan Stanley lowered its earnings estimates for S&P 500 companies yesterday, citing declining profit margins in the upcoming quarters.
"The combination of sustained, higher wage costs and slowing end market/consumer pricing has been evident in recent macro data and loudly signals margin pressure," said Mike Wilson, chief equity strategist, and chief investment officer for Morgan Stanley.
Moreover, according to FactSet, the consensus analyst estimate for S&P 500 earnings growth for 2022 is now 7.6%, compared to the prior expectation of more than 9%.
Thus, fundamentally weak stocks Snap Inc. (SNAP), Allegiant Travel Company (ALGT), and Cardiff Oncology, Inc. (CRDF), which are continually falling in price, could be best avoided or considered for selling short.
Snap Inc. (SNAP)
SNAP is a leading camera and social media company in North America, Europe, and internationally. The company provides Snapchat, a camera application that enables people to communicate visually through images and short videos. It also offers Spectacles, an eyewear product that connects with Snapchat and captures photos and videos from a human perspective, and advertising products.
On August 31, SNAP announced to lay off nearly 20% of its more than 6,400 employees. SNAP's CEO Evan Spiegel said in a statement that the company is restructuring to focus on three strategic priorities: community growth, revenue growth, and augmented reality.
"As a result, we are sunsetting several projects, reducing the size of our team by approximately 20 percent, and announcing the promotion of Jerry Hunter to Chief Operating Officer," Spiegel added.
In the fiscal 2022 second quarter ended June 30, 2022, SNAP's operating loss widened 108.3% year-over-year to $1.11 billion. Its adjusted EBITDA declined 93.9% from the year-ago value to $7.19 million. The company reported a net loss of $422.07 million, worsening 178.3% year-over-year.
In addition, the company's non-GAAP net loss per share attributable came in at $0.02, compared to a $0.10 gain in its prior-year period. Cash outflow from operating activities amounted to $124.08 million, up 22.8% year-over-year. Its free cash outflow stood at $124.08 million, compared to $101.09 million in the year-ago quarter.
Analysts expect SNAP's earnings per share to decline 51.8% from the prior-year period to $0.11 for the fiscal 2022 fourth quarter (ending December 2022). Also, the current year's $0.04 consensus EPS estimate represents a 92.1% year-over-year decline. The company has missed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 64.4% over the past six months and 85.9% over the past year to close the last trading session at $10.77.
SNAP's POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SNAP has a grade of F for Stability. It has a D grade for Growth, Momentum, Sentiment, and Quality. Within the F-rated Internet industry, it is ranked #59 of 65 stocks.
Click here to see SNAP's POWR Rating for Value.
Allegiant Travel Company (ALGT)
ALGT is a leisure travel company that provides travel services and products to residents of underserved cities in the United States. The company offers scheduled air transportation and air-related services and products in conjunction with air transportation. Additionally, it provides third-party travel products, including hotel rooms and ground transportation.
On August 18, ALGT closed its private offering and issued $550 million in aggregate principal amount of its 7.25% senior notes due 2027. The collateral that secures the notes due 2027 also secures the company's existing $150 million of 8.5% senior secured notes due 2024. The note offerings reflect the company's massive debt burden.
ALGT's operating expenses increased 81% year-over-year to $603.72 million in the fiscal 2022 second quarter ended June 30, 2022. The company's operating income was $26.13 million, down 81.2% year-over-year. Its income before income taxes declined 95.3% from the prior-year period to $5.80 million.
Furthermore, ALGT reported a net income of $4.40 million, declining 95.4% year-over-year. The company's earnings per share decreased 95.6% from the year-ago value to $0.24.
The company's $0.18 consensus EPS estimate for the fiscal 2022 third quarter (ending September 2022) indicates a 72.4% decline from the same period in 2021. In addition, analysts expect ALGT's EPS of $1.77 for 2022 (ending December 2022) to decline 13.2% year-over-year.
The stock has slumped 28.7% over the past six months and 50.1% year-to-date to close the last trading session at $95.23.
ALGT's POWR Ratings reflect its poor prospects. The stock has a D grade for Growth, Sentiment, and Stability. Within the D-rated Airlines industry, it is ranked #21 of 31 stocks.
To see ALGT's POWR Ratings for Value, Momentum, and Quality, click here.
Cardiff Oncology, Inc. (CRDF)
CRDF is a clinical-stage oncology company. It develops medical treatment for cancer patients in California. The company's lead drug candidate is onvansertib, an oral selective Polo-like Kinase 1 Inhibitor for anti-cancer therapeutics; CY140 is in 1/2 studies in solid tumors and leukemias, and TROV-054 is a Phase 1b/2 for FOLFIRI and bevacizumab.
In the fiscal 2022 second quarter ended June 30, 2022, CRDF's operating expenses increased 51.4% year-over-year to $10.53 million. Its loss from operations worsened by 51.6% from the year-ago value to $10.44 million.
Net loss attributable to common stockholders came in at $10.45 million, widening 54.5% year-over-year, while net loss per share worsened 41.2% year-over-year to $0.24.
Analysts expect CRDF's revenue to decline 20.7% from the prior-year period to $68,200 for the fiscal 2022 third quarter (ending September 2022). The consensus loss per share estimate for the ongoing quarter is expected to come in at $0.26, worsening 55.3% year-over-year.
CRDF's shares have plunged 60.3% year-to-date to close the last trading session at $2.55.
CRDF's POWR Ratings are consistent with this weak outlook. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
CRDF has a grade of F for Momentum and a D for Value, Stability, and Quality. Within the F-rated Biotech industry, it is ranked #382 of 399 stocks.
To see additional POWR Ratings (Growth and Sentiment) for CRDF, click here.
SNAP shares fell $0.05 (-0.46%) in premarket trading Wednesday. Year-to-date, SNAP has declined -77.10%, versus a -17.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet's keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet's looks to help retail investors understand the underlying factors before making investment decisions.
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