Don’t Buy Aterian Stock Until After Monday’s Earnings

ATER Stock - Don’t Buy Aterian Stock Until After Monday’s Earnings

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Aterian (NASDAQ:ATER), the technology and consumer products company and popular meme stock, reports first-quarter (Q1) results on May 9 after the markets close. If you’re thinking about buying ATER stock before it reports on Monday, I’d put that thought aside. While it’s likely to drop in Friday trading for the fourth consecutive day, making it more than a dollar cheaper from its May 2 close, buying on the dip in this market is not wise. 

If Aterian’s business is all that the Reddit crowd believes it to be, buying on solid news rather than speculation is the smart move right now. Sure, you’ll pay a higher price, but long-term investors shouldn’t care that they spent a little more for a stock. What you want is a long-term return. That will come if Aterian is the real deal. On Monday evening, you should ask yourself after reading Aterian’s results and conference call transcript whether it has moved the ball further down the field. 

As my InvestorPlace colleague Stavros Georgiadis recently stated, the biggest issue surrounding the company’s financial performance is its contribution margin. In 2021, it fell 340 basis points to 10.1%. What is a contribution margin? The company defines it as gross profit less e-commerce platform commissions, online advertising, and selling and logistics expenses. It is meant to reflect how much it makes from each dollar of revenue more accurately.

Georgiadis also stated that the war in Ukraine combined with high inflation ought to put downward pressure on this metric. In Q4 2021, its contribution margin was 7.9%, 330 basis points lower than a year earlier. The decline was due to its e-commerce platform commissions, online advertising, and selling and logistics expenses almost doubling over the previous year.  

In Q1 2021, its contribution margin was 12.7%. I do not doubt that it will be well into the single digits when it reports after the close on Monday. Investors ought to look at the expenses deducted from gross profits. They’ll be close to double what they were last year.

Revenue growth isn’t Aterian’s problem. Making money is. I’d wait to see what the damage is before buying. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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