Growth stocks have recently taken a breather, with most of them trading below the levels they hit in February. A great of majority of these companies saw accelerated growth last year as the Covid-19 pandemic created huge demand for their products or services. Yet, as the new earnings season approaches, investors want to take some profits off the table. Therefore, today I’ll discuss seven hot stocks that could crash hard.
Earnings season typically means increased volatility. The market takes a detailed look at company fundamentals against expectations. At present, for many companies, valuation levels are overstretched. Put another way, if their quarterly metrics do not live up to those high expectations, investors would not be shy to hit the “sell” button. It is only normal that individuals will want to protect their profits.
Academic Ruben Arevalo of Spain’s Polytechnic University of Valencia, wrote that “Financial markets are complex and non-linear dynamic systems, so their predictions are really challenging.” In other words, it’s not always easy — even for market professionals — to know what might be next for a firm’s share price.
However, volatility and occasional selling pressure are to be expected, especially around earnings release dates. With that in mind, we have listed seven stocks that may crash hard in April:
- Carnival (NYSE:CCL)
- Chegg (NYSE:CHGG)
- Fiverr International (NYSE:FVRR)
- MarketAxess Holdings (NASDAQ:MKTX)
- Peloton Interactive (NASDAQ:PTON)
- Teladoc Health (NYSE:TDOC)
- XpressSpa Group (NASDAQ:XSPA)
Stocks That Could Crash: Carnival (CCL)
- 52-week range: $7.80 – $30.12
- YTD % change: Up ~23%
The pandemic affected travel companies, especially cruise operators like Carnival. As the largest cruise company worldwide, it has close to 100 ships that are ready to welcome guests when cruises are allowed to sail the high seas again. Prior to the pandemic, in 2019, around 13 million guests sailed with Carnival.
According to the most recent financial metrics, the company had almost no revenue. Adjusted net loss came at $1.9 billion, compared to adjusted net income of $427 million in the prior year period. Cash and equivalents stood at $9.5 billion. Carnival is expected to release Q1 results on April 7.
The U.S. Centers for Disease Control & Prevention (CDC) currently has a Conditional Sailing Order (CSO) in place through the beginning of November. As a result, cruises will not start this summer, either. Many other countries have similar bans. For instance, Canada has banned all cruise in Canadian waters through the end of February 2022, which means Alaska-bound cruises cannot take place, either.
Put another way, the industry cannot recover in 2021. In fact, given the news of a potential third wave in the pandemic, Carnival is unable to predict when the entire fleet will return to normal operations. And yet, CCL stock has soared by 230% from its March 2020 lows. Such a run-up in price in price is hard to justify for the cruise operator who will not generate revenues for months to come.
- 52-week range: $32.53 – $115.21
- YTD % change: Down ~7%
Online education group Chegg has been one of the winners in the days of the pandemic. Via its learning platform, the Santa Clara, California-based group specializes in textbook rentals, course assistance and online tutoring. It provides textbook titles for students to rent and also has live tutors available to students online.
Chegg’s fourth-quarter and 2020 full-year results announced in early February were robust. Quarterly revenue was $205.7 million, an increase of 64% YoY. Net income was $26 million, or 18 cents per diluted share. A year ago, the metrics had been $8.2 million, or 6 cents per diluted share. It ended the year with $1.7 billion in cash and equivalents.
“The transition to online and hybrid learning is inevitable and, with the accelerated trends that we are seeing, we have the confidence to raise our guidance for 2021,” said CEO Dan Rosensweig.
Despite the optimistic outlook, maintaining the momentum and the subscriber numbers of the past year could be a challenge for Chegg. Although most analysts concur that the shift to online or hybrid learnings is here to stay, the stock’s current valuation level urges caution. Forward price-to-earnings and price-to-sales ratios are 53.19 and 16.60, respectively. A potential pullback toward the $80 level during the return to normality could provide a better opportunity to buy CHGG shares at a more reasonable price tag.
Fiverr International (FVRR)
- 52-week range: $22.52 – $336
- YTD % change: Up ~15%
Israel-headquartered Fiverr International operates an online marketplace worldwide for freelancers, who offer services in more than 200 categories, such as graphic design, digital marketing, programming, video and animation. Buyers of services include businesses of various sizes.
Fiverr reported results for the fourth-quarter and full-year 2020 on Feb. 18. Quarterly revenue was $55.9 million, an increase of 89% YoY. Non-GAAP net income was $4.8 million, or 12 cents per diluted share, compared to net loss of $2.7 million, or 8 cents net loss per diluted share, in the prior year quarter.
CEO Micha Kaufman cited, “2020 was a landmark year for our business with 77% year over year revenue growth driven largely by bringing more freelancers and businesses together during a critical time of global change.”
Ofer Katz, Fiverr’s CFO, added, “We believe the strong momentum is carrying into 2021 and the increased awareness and adoption of digital freelancing services will continue to provide tailwinds for our business.”
Fiverr has grown rapidly in the past 12 months, as the pandemic forced many to work from home. As the demand for the portal increased, FVRR stock soared over 820% since March 2020, currently hovering around $225 per share.
Remote-working, like online education, is likely to stay with us in the long-run. Yet, FVRR stock has had a significant run-up in price, meaning it is time to be careful. As the earning season starts and many businesses look for ways to return to the pre-coronavirus modes of operations, I expect selling pressure in the shares. A potential decline toward the $200 level would improve the margin of safety for buy-and-hold investors.
MarketAxess Holdings (MKTX)
- 52-week range: $316.15 – $606.45
- YTD % change: Down about 11%
- Dividend yield: 0.51%
New York-based MarketAxess operates an electronic trading platform that enables trading among fixed-income market participants. The top trading products are U.S. High-Grade Corporate Bonds, Emerging Markets Bonds, U.S. Crossover and High-Yield Bonds, Eurobonds, U.S. Agency Bonds, Municipal Bonds, and others.
MarketAxess announced results for Q4 and full-year 2020 in late January. Revenue for the quarter increased 32% to $171.3 million, compared to $129.8 million in the comparable 2019 quarter. Operating income was $91.7 million, an increase of 50.7% YoY. Net income totaled $72.9 million, or $1.91 per share on a diluted basis, compared to $50.3 million, or $1.32 per share, for the fourth quarter of 2019.
CEO Rick McVey said, “New sources of liquidity delivered through Open Trading drove over $1 billion in estimated transaction cost savings to our clients, exceeding total company revenue. Strong market share gains in all core trading products drove revenue growth of 35% for the year, and operating income growth of 49%.”
The group controls close to 85% of U.S. electronic corporate fixed-income trading. Its lower-cost offering has been a disruptive power in the markets. In the past year, MarketAxess has seen record trade volume, revenue and operating income levels.
However, many analysts concur MKTX shares are currently overvalued at around $512 per share. MKTX stock’s forward P/E and P/S ratios stand at 62.50 and 28.66, respectively. It seems like most of the short-term growth has already been factored into the price. If you are not yet a shareholder, you may want to wait for a potential dip in stock price.
Peloton Interactive (PTON)
- 52-week range: $25.85 – $171.09
- YTD % change: Down ~30%
New York-based Peloton Interactive is a provider of interactive fitness platform. It provides technology-enabled and connected fitness classes to members. It also has instructor-led, streaming classes.
Connected Fitness Product revenue consists of sales of bike and related accessories, while subscription revenue is generated from monthly Connected Fitness subscriptions and digital subscriptions.
Peloton reported second-quarter results of FY2021 in early February. It generated total revenue of $1.6 billion, a 128% YoY growth. Connected Fitness segment revenue was $870.1 million, representing a 124% YoY growth and 82% of total revenue. Net income for Q2 was $63.6 million versus a net loss of $55.4 million in the same period last year. Diluted EPS was 18 cents respectively. Peloton ended Q2 with $2.1 billion in cash and equivalents.
Management cited, “We continued to see robust demand for our connected fitness platform through the Holiday selling season, and Member engagement gains continue to validate our hardware, software, and content investments.”
PTON stock had a great story in the past year, benefiting from high growth when gyms were closed. But the momentous surge in price puts further upside potential in April in doubt.
As the vaccine rollout continues, market analysts are questioning the sustainability of Peloton’s growth. Many individuals could possibly head back to their local gyms once restrictions on daily life ease. Forward P/E and P/S ratios stand at 111.11 and 11.31, respectively. A potential decline toward $100 would offer better value.
Teladoc Health (TDOC)
- 52-week range: $135.52 – $308
- YTD % change: Down ~14%
Teladoc Health provides virtual healthcare services over its online platform as well as via mobile devices, vide, and telephone. So far, Teladoc has primarily partnered with employers, health plans, and health systems to offer network access to their members. Covid-19 meant accelerated growth as more businesses and individuals who could not visit their doctors in person used its services.
The group reported results for Q4 and full-year 2020 in late February. Q4 revenue grew 145% YoY to $383 million, compared to $156 million in the prior year’s quarter. Net loss was $394 million for the fourth quarter, compared to $19 million for the same quarter of the previous year. Net loss per diluted share was $3.07 for the fourth quarter, compared to 26 cents for the prior year quarter.
“As virtual care shifted to become a consumer expectation in 2020, Teladoc Health not only met the rapidly growing demand, but we transformed our company to define a new category of whole-person virtual care,” said Jason Gorevic, CEO of Teladoc Health. “By accelerating our mission to transform the health care experience, we exceeded our fourth-quarter and full-year 2020 expectations and see strong momentum across our global business in 2021.”
However, as the vaccine rollout continues, Teladoc’s rapid growth could soon reverse course. Analysts currently debate what might happen to the telehealth sector once normality resumes. A move toward $170 would offer a better long-term value for retail investors.
- 52-week range: $0.48 – $8.82
- YTD % change: Up ~55%
New York-based XpresSpa Group is a wellness business, focused on providing spa services mostly at airports. Geographically, a majority of revenues come from the U.S.
XpresSpa announced fourth-quarter and 2020 full-year results on March 31. Quarterly revenue came at $300,000 compared to $10.9 million in Q4 2019. The decrease in revenue was due to the negative adverse impact of the pandemic as the company temporarily closed all global spa locations due to its categorization as “non-essential services.” Net loss was $15.7 million compared to net loss of $7.1 million in the prior year period.
Over the past year, in an understandable attempt to save the day, the company started offering Covid-19 testing at its locations at airports. CEO Doug Satzman stated, “Over the past few weeks, we have been encouraged by rising patient testing volumes and increased average revenue per patient at our XpresCheck Wellness Centers. We attribute this traction primarily to the rollout of COVID-19 Rapid Testing which has become the preferred testing option of over 73% of all patients.”
Although management sounded optimistic for the second half of the year, the price tag of XSPA shares potentially has most of the good news priced in. In February, the company announced a coronavirus-testing partnership with airlines. As a result, the stock soared. But now, most airlines accept Covid-19 results at-home test kits. And the share price has already come under pressure.
Investors would need to remember that XpresSpa’s core business depends on travelers visiting its spas at airports, a move that is not likely to happen yet. Wild swings in XSPA stock price with further downward bias should be expected.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.