2 Stocks to Avoid When Consumers Feel Lousy The troubling macroeconomic tides have led to declining consumer sentiments and are compelling them to cut back on spending. Thus, we think Roku (ROKU) and Bed Bath & Beyond (BBBY)...
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The troubling macroeconomic tides have led to declining consumer sentiments and are compelling them to cut back on spending. Thus, we think Roku (ROKU) and Bed Bath & Beyond (BBBY) might be best avoided now, given their weak fundamentals. Keep reading….
Amid high inflation, consecutive rate hikes, and rising recession odds, market volatility is rife, as is evident from the CBOE Volatility Index's 54% year-to-date gains. Moreover, consumer confidence has sunk below the Global Financial Crisis (GFC) levels.
The Westpac-Melbourne Institute Consumer Sentiment Index dropped 6.9% in November. Westpac's chief economist Bill Evans, said, "This point of 78.0 is now below the low point of the GFC (79.0) and only slightly higher than when the COVID pandemic first hit in April 2020 (75.6)." Furthermore, according to Wilmington Trust's Luke Tilley, the United States now faces a 55% recession probability.
Declining consumer confidence is compelling people to pull back on spending. Given the backdrop, we think Roku, Inc. (ROKU) and Bed Bath & Beyond Inc. (BBBY) might be best avoided now, considering their bleak fundamentals.
Roku, Inc. (ROKU)
TV streaming platform operator ROKU has two segments, Platform, and Player. Its platform allows users to discover and access various movies, episodes, live TV, news, sports, shows, and others.
ROKU's forward EV/Sales of 1.86x is higher than the industry average of 1.84x. Its forward Price/Sales of 2.32x is 98.7% higher than the industry average of 1.17x.
ROKU's trailing-12-month gross profit margin of 46.61% is 7.4% lower than the industry average of 50.32%, while its trailing-12-month negative net income margin of 7.59% is lower than the industry average of 4.58%.
ROKU's total net revenue came in at $761.37 million for the third quarter that ended September 30, 2022, up 12% year-over-year. However, its Player segment revenue came in at $90.97 million, down 6.6% year-over-year. Its net loss came in at $122.18 million, compared to an income of $68.94 million in the year-ago period.
Moreover, its loss per share came in at $0.88, compared to an EPS of $0.48 in the previous period.
ROKU's revenue is expected to decrease 6.3% year-over-year to $810.51 million for the quarter ending December 2022. Its EPS is expected to decline substantially year-over-year to negative $1.70 for the same period. Over the past month, the stock has lost 12.7% to close the last trading session at $48.11.
ROKU's POWR Ratings reflect its poor prospects. It has an overall grade of F, which indicates a Strong Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Growth and a D grade for Momentum, Stability, and Sentiment. Click here to access the additional POWR Ratings for ROKU (Value and Quality). ROKU is ranked #56 out of 59 stocks in the Consumer Goods industry.
Bed Bath & Beyond Inc. (BBBY)
BBBY and its subsidiaries operate a chain of retail stores. It sells a range of domestic merchandise, like bed linens, bath items, kitchen textiles, home furnishings, such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and various juvenile products.
Its trailing-12-month gross profit margin of 29.45% is 18.4% lower than the industry average of 36.08%. Also, its trailing-12-month negative net income margin of 16.98% is lower than the industry average of 5.33%.
BBBY's net sales came in at $1.44 billion for the second quarter that ended August 27, 2022, down 27.6% year-over-year. Its adjusted net loss came in at $256 million compared to an income of $4 million in the previous period, while its adjusted loss per share came in at $3.22 compared to an EPS of $0.04 in the prior-year period.
Street expects BBBY's revenue to decrease 23.2% year-over-year to $6.04 billion in 2023. Its EPS is expected to decline 717.6% year-over-year to negative $8.83 in 2023. Over the past month, the stock has lost 34.7% to close the last trading session at $3.54.
BBBY has an overall F grade, equating to a Strong Sell in our POWR Ratings system. Also, it has an F grade for Stability and Sentiment and a D grade for Momentum and Quality.
Click here to access the BBBY ratings for Growth and Value. It is ranked #56 out of 60 stocks in the Home Improvement & Goods industry.
ROKU shares were trading at $52.94 per share on Thursday morning, up $4.83 (+10.04%). Year-to-date, ROKU has declined -76.80%, versus a -17.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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