After cooling off for several months, the hype around meme stocks returned earlier this year. Following the massive short-squeeze rallies last year, most meme stocks crashed due to weak fundamentals and growth prospects. Many meme stocks have suffered the same fate this year and have generated massive losses for retail investors.
Stocks fell sharply to their June 2020 lows after the August consumer price index (CPI) rose to 8.3%, beating economists’ estimates. Investors’ fears over unrelenting inflation may lead to the stock market witnessing further declines as the Fed is expected to raise interest rates aggressively.
Therefore, we think avoiding meme stocks Peloton Interactive, Inc. (PTON) and Bed Bath & Beyond Inc. (BBBY) could be wise. The weak fundamentals of these stocks may not help them sustain any gains they witness due to retail investors’ interest.
Peloton Interactive, Inc. (PTON)
PTON offers interactive fitness products through two segments: Connected Fitness Products and Subscription. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
PTON’s total revenue decreased 27.6% year-over-year to $678.70 million for the fourth quarter ended June 30, 2022. Its operating loss widened 298.6% from the prior-year quarter to $1.20 billion. The company’s net loss came in at $1.24 billion, widening 297.3% year-over-year. Its loss per share stood at $3.68, up 250.5% year-over-year.
Street expects PTON’s revenues to decline 20.6% year-over-year to $639.10 million in the first quarter ending September 30, 2022. Its EPS is expected to decrease by 76.5% per annum over the next five years and remain negative in the current year. PTON has failed to surpass the EPS estimates in each of the trailing four quarters.
Over the past year, the stock has declined 90.7% to close the last trading session at $9.74.
PTON’s POWR Ratings are consistent with this bleak outlook. The stock's overall F rating translates to a Strong 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 has an F grade for Sentiment and Quality and a D for Value and Stability. Among the 59 stocks in the Consumer Goods industry, it is ranked #57.
To see additional ratings of PTON for Growth and Momentum, click here.
Bed Bath & Beyond Inc. (BBBY)
BBBY is an omnichannel retailer offering a range of domestic merchandise such as bed linens, bath items, kitchen textiles, home furnishing items, and various juvenile products. The company sells its products through its website and under ten brands: Bee & Willow, Marmalade, Nestwell, Haven, Simply Essential, Our Table, Wild Sage, Squared Away, Studio 3B, and H for Happy.
In the fiscal first quarter that ended May 28, 2022, BBBY’s net sales decreased 25% year-over-year to $1.46 billion. Its gross profit declined 44.9% year-over-year to $349.31 million, while its operating loss widened 371.9% from the year-ago value to $339.16 million. BBBY’s adjusted net loss came in at $225.23 million, compared to an adjusted net income of $4.93 million in the year-ago period.
Also, its adjusted EBITDA loss came in at $223.54 million, compared to an adjusted EBITDA of $86.07 million in the same quarter last year. The company’s adjusted net loss per share amounted to $2.83, compared to an EPS of $0.05 in the prior year period.
Analysts expect BBBY's EPS to be negative for the quarter ended August 31, 2022. Its consensus revenue estimate is expected to decline 27.1% year-over-year to $1.45 billion in the to-be-reported quarter. BBBY has missed the consensus EPS estimates in each of the trailing four quarters.
BBBY has declined 65.8% over the past year to close the last trading session at $8.02.
BBBY's POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. It has an F grade for Stability and Sentiment and a D for Growth and Momentum. It is ranked #58 of 62 stocks in the Home Improvement & Goods industry.
Click here to see the other ratings of BBBY for Value and Quality.
PTON shares were trading at $9.80 per share on Monday morning, up $0.06 (+0.62%). Year-to-date, PTON has declined -72.60%, versus a -18.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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