The 8.3% year-over-year increase in August Consumer Price Index (CPI) has surpassed economists’ estimates and strengthened the Fed’s case for more aggressive interest rate hikes. Hence, market volatility is rife ahead of the Fed’s next rate decision on…
September 21, with a third consecutive 75-bps rate hike almost certain.
Persistent monetary tightening has come with collateral damage for individuals and businesses with increased borrowing costs, thereby increasing the odds of the economy slipping into a recession.
Given such uncertain economic and market conditions, it could be wise to avoid fundamentally weak stocks Block, Inc. (SQ), ChargePoint Holdings, Inc. (CHPT), and Peloton Interactive Inc. (PTON) or sell the short. These stocks seem to be falling knives.
Block, Inc. (SQ)
SQ is a technology company that creates tools to enable businesses, sellers, and individuals to participate in the digital economy. The company operates through two segments: Square and Cash App.
On August 24, it was announced that a class action lawsuit had been filed against SQ on allegations of negligent security after a breach of 8.2 million users’ data in the Cash App. The company disclosed the violation through an SEC filing four months after the incident without explaining the delay.
On August 19, the Consumer Financial Protection Bureau (CFPB) filed a petition asking a federal judge to force SQ to fully comply with the demands of an investigation related to Cash App’s handling of payments and disputes. The company is yet to provide all the documents and data requested by the bureau in August 2020 and August 2021.
SQ’s total net revenue declined 5.9% year-over-year to $4.40 billion for the second quarter that ended June 30, 2022. The company reported an operating loss of $213.77 million for the quarter, compared to $124.99 million in the year-ago period.
In addition, the company’s adjusted EBITDA for the quarter declined 47.9% year-over-year to $187.34 million. It reported an adjusted net income and adjusted net income per share of $110.74 million and $0.36, down 56.8% and 63.3% year-over-year, respectively.
Analysts expect SQ’s revenue for the fiscal year 2022 (ending December 2022) to decrease 0.5% year-over-year to $17.58 billion. The company’s EPS for the current year is expected to decline 48.9% year-over-year to $0.87.
The stock has plunged 57.6% year-to-date and 21.8% over the past month to close the last trading session at $69.18.
SQ’s POWR Ratings are consistent with its dismal performance and bleak outlook. The stock has an overall D rating, equating 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.
It also has a D grade for Stability, Sentiment, and Quality. It is ranked #91 out of 107 stocks in the Financial Services (Enterprise) industry. Click here to access SQ’s ratings for Growth, Momentum, and Value.
ChargePoint Holdings, Inc. (CHPT)
CHPT provides networked charging technology solutions.in North America and Europe. The company caters to various segments, such as commercial, fleet, and residential.
On August 9, 2022, it was announced that CHPT would be powering the chargers at new stores by Starbucks Corporation (SBUX) in partnership with Volvo (VLVLY) along a 1,350-mile route from the Colorado Rockies to the Starbucks Support Center in Seattle. However…
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