Aterian (NASDAQ:ATER) released its first-quarter report on Monday, in which it revealed an earnings miss of 52 cents per share and a revenue shortfall of $1.14 million. This really shouldn’t come as a surprise, and I believe ATER stock is headed for another downward spiral.
Much has been made of Aterian’s business model. However, I don’t see much value in it. The company essentially leverages machine learning and independent branding to host a range of household products and claims to have superior market penetration. Yet, just about every successful retailer out there is utilizing machine learning and data analytics — they just don’t publish it on their websites.
Furthermore, ATER stock is exponentially linked to the consumer spending curve. None of its 14 hosted brands possess market strongholds, causing the company’s sales to be extremely sensitive to economic cycles. Thus, I don’t think Aterian’s earnings will pick up anytime soon, especially considering household obligations have reached 14% and the inflation rate has reached 8.54%.
ATER stock doesn’t look great from a quantitative vantage point. First off, its return on invested capital (ROIC) of negative 31.25% suggests Aterian is struggling for market position and subsequently overspending investors’ capital.
Secondly, Aterian exhibits a negative return on equity (ROE), indicating its stockholders aren’t receiving any value for their money. Lastly, Aterian’s interest coverage ratio of negative 17.56x conveys that it’s burdened by an enormous debt load. This could see the firm enter the equity markets to raise additional capital, subsequently diluting its existing shareholders.
It’s easy to get lured into buying the dip on Aterian. It’s a once-renowned meme stock that’s trading at a 1.61x discount to its sales. However, past price isn’t always an indication of future price. I don’t see any solid fundamentals backing up Aterian.
Initially, the company claimed its AI-driven business model would proliferate returns and cut costs. However, the current economic environment has unveiled Aterian’s fault lines with a massive earnings miss. Therefore, ATER stock is a sell.
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On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.