Stocks across the board have plunged in 2022. Even the seemingly invincible tech giants, such as Netflix (NASDAQ:NFLX), have witnessed year-to-date (YTD) declines of over 50%. The crypto market has fallen too, as investors realize that a bet on crypto is essentially a bet on a high-risk asset. The insolvency of FTX drove the price of Bitcoin (BTC-USD) below $17,000 for the first time since November 2020, bringing its yearly loss to over 60%.
Much of this year’s decline can be attributed to the Federal Reserve raising interest rates in an effort to combat inflation. With rising prices and rates, customers have less incentive to spend and borrow, weakening the economy. It isn’t just customers, though. Companies are also less incentivized to borrow with rising rates, which spurns growth, leading to fewer available jobs and the possibility of mass layoffs.
Unprofitable and speculative companies are most at risk of rising rates. That’s because a higher interest rate discounts future cash flows back to the present value at a higher rate, leading to a lower present value. The valuation of unprofitable companies lies on the basis of future free cash flow () because they do not currently generate FCF.
As with 2000 and 2008, many companies that saw their stock prices soar to unreasonable highs in 2020 and 2021 may never see those prices again. That’s why it’s important to sell out of stocks at the right time or risk even greater losses, as well as opportunity costs.
The buy-now-pay-later (BNPL) industry sprang into the spotlight last year, propping up the prices of stocks like Affirm (NASDAQ:AFRM). However, under the surface, Affirm wasn’t what investors thought it was.
Consumer sentiment reached an all-time low in June and is still hovering near all-time lows. That’s been led by surging prices and higher borrowing rates, which have discouraged customers from spending and borrowing. Spending and borrowing happen to be the two factors that help keep Affirm in business.
Affirm isn’t insulated from higher interest rates, despite charging a 0% annual percentage yield for many BNPL customers. In its most recent earnings, the company collected 37.8% of its revenue from interest income through loans.
During the third quarter, the company reported revenue of $362 million and an earnings per share ( ) loss of 86 cents. Both metrics came in below the analyst estimates for revenue of $364 million and an EPS loss of 84 cents. Affirm also lowered its full-year guidance to between $1.6 billion and $1.675 billion from between $1.63 billion and $1.73 billion.
In short, the macroeconomic environment just doesn’t support AFRM as a suitable investment right now.
AMC Entertainment (AMC, APE) and GameStop (GME)
AMC (NYSE:AMC) and GameStop (NYSE:GME) entered the spotlight during the start of Covid-19, flying to unimaginable highs in 2021 after gaining a loyal, cult-like audience on Reddit’s r/WallStreetBets. Unfortunately, the underlying businesses beneath the hype are nothing to brag about.
AMC is the largest movie theater chain in the world, while GameStop sells video games. Both of the company’s business models seem to reflect the past, as consumers have largely pivoted to streaming and downloading video games through online portals instead of physically purchasing them.
Meanwhile, AMC CEO Adam Aron has embraced the meme stock hype, often tweeting directly to loyal AMC fans on Twitter. Communication between management and investors is always a plus, but not when your latest innovation is take-home popcorn bags.
Let’s not forget that both companies reported unprofitable quarters in their last earnings reports, putting their respective stocks at heightened risk of rising interest rates. AMC reported a net loss of $226.9 million, up from a loss of $224.2 million a year ago, while GameStop reported a loss of $108.7 million, up from a loss of $61.6 million a year ago.
It seems as if the only factor keeping AMC and GME stock buoyed is their loyal investors. Don’t be the one holding the bag when these investors depart in favor of the next popular meme stock.
Beyond Meat (BYND)
Shares of Beyond Meat (NASDAQ:BYND) peaked at over $230 shortly after the plant-based meat company conducted its initial public offering in May 2019. The IPO shares were sold for $25 a piece, valuing the company at about $1.5 billion. Investors were quick to jump on the idea that plant-based foods could soon take off.
Today, BYND trades in the mid-teens with a market capitalization under $1 billion, meaning that the company has provided a negative return over three years of trading publicly. That’s because plant-based substitutes have failed to gain a substantial presence, despite numerous mass marketing attempts.
Beyond Meat recently reported its Q3 earnings and they were unsavory to say the least. Revenue tallied in at $82.5 million, falling short of the analyst estimate of $98.1 million. Making matters worse, the company has reported an EPS loss since Q4 2020, most recently reporting a loss of $1.60. Analysts were expecting a loss of $1.14.
With the possibility of a recession underway, consumers will likely cut their overall grocery spending and be more apprehensive in making new food purchases. That makes BYND a prime candidate on the sell list.
Blue Apron (APRN)
Shares of Blue Apron (NYSE:APRN) soared as high as $12 during the pandemic as investors anticipated a rise in home-delivered meals due to quarantine measures. However, it’s all been downhill from there
Today, APRN stock trades in the $1 range and also carries customer concentration risk. In October, the company lowered its Q3 guidance to between $109 million and $112 million from previous guidance of between $125 million to $131 million. That was solely due to one enterprise customer shifting their $15 million bulk order to Q4 from Q3. If that single customer decided to stop doing business with Blue Apron, APRN would take a massive fall.
It isn’t only consumer concentration risk. On Oct. 6, the company issued $14.1 million in stock after not receiving $69.4 million as part of a gift card sponsorship deal. Blue Apron previously stated that if it did not receive the $69.4 million, it can only continue to operate until Q1 of next year, which is right around the corner. As of Sept. 30, it had cash and cash equivalents of $31 million.
With cash coming in short and significant customer concentration and going concern risk, APRN stock is a sell.
Bed Bath & Beyond (BBBY) and Kohl’s (KSS)
Bed Bath & Beyond (NASDAQ:BBBY) and Kohl’s (NYSE:KSS) emerged as meme stocks last year, although the businesses themselves are nothing to brag about. BBBY is trading just above its 52-week low, while KSS trades above it by a healthy margin. However, it’s very possible that both stocks could soon dive below their respective lows.
This year, the two companies have faced similar issues, such as over inventory, weakening consumer demand, and supply chain challenges. That has led Bed Bath to issue a series of dilutive orders, such as authorizing $150 million worth of shares in an at-the-market (ATM) offering, which followed a 12 million share ATM offering.
According to Yahoo Finance, the company currently has 88.15 million shares outstanding. If each share sold in the $150 million offering carried a price of $4, shares outstanding would increase by 37.5 million, or by 42.54%. That would reverse years of declining shares for Bed Bath at the expense of shareholders.
The outlook for Kohl’s isn’t much better. The struggling retailer recently announced that CEO Michelle Gass would step down following a botched self-sale and mounting pressure from activist investors. Kohl’s hasn’t done much to reassure investors of a revival, announcing in its preliminary Q3 earnings that comparable sales would fall 6.9% year over year, while net sales would fall by 7.2%
As the trend of e-commerce continues to intensify, paired with stiff competition from retailers like Walmart (NYSE:WMT), it appears that BBBY and KSS may ultimately suffer the same fate as Sears.
ContextLogic (NASDAQ:WISH), more commonly known by its e-commerce arm, Wish, has seen its business get crushed this year. During Q3, revenue declined by 66% to $125 million, led by a 78% drop in core marketplace revenue. Making matters worse, its net loss almost doubled to $124 compared to a loss of $64 million a year ago, putting a dark cloud over the company’s profitability efforts. Adjusted earnings before interest, taxes, deductions, and amortizations totaled a loss of $95 million, more than tripling the adjusted EBITDA loss of $30 million YOY.
If the financials weren’t bad enough, insiders have been selling out as well. In the past 12 months, insiders have purchased 57.92 million shares and sold 38.06 million shares. The caveat is that the shares-purchased figure includes a non-open market acquisition of 57.12 million shares by founder and former CEO Piotr Szulczewski. Excluding Szulczewski’s acquisition, insiders have netted a total of 37.26 million shares sold in the past year.
Szulczewski has been on a WISH stock selling spree since he acquired the 57.12 million shares on Aug. 9. As of Oct. 28, the date of his last sale, he owns 26.73 million shares.
With declining financials and an insider exodus, it’s best to follow along and sell WISH.
Jumia Technologies (JMIA)
Jumia (NYSE:JMIA) operates as an e-commerce company with a focus in Africa. While the African e-commerce market is largely untapped due to technology inefficiencies, these very same inefficiencies have hampered Jumia’s efforts to expand its reach. Since becoming public in 2019, Jumia has never reported a profitable quarter.
In November, the company announced that co-founders Jeremy Hodara and Sacha Poignonnec would step down as co-CEOs, effective immediately. The news conveyed a sense a fear among investors, as it wouldn’t make sense for Hodara and Poignonnec to leave if they thought Jumia had a bright future ahead.
The macroeconomic environment of Africa doesn’t help profitability efforts. Foreign exchange conversion rates have caused local currencies to depreciate against the U.S. dollar, while the average yearly wage in the country is only $9,096. That leaves very little space for spending.
To be fair, Jumia is still the largest e-commerce company in Africa, growing revenue at 18.4% YOY. But as of now, investors seem to be more focused on short-term weakness than long-term potential.
Coinbase (COIN) and Robinhood (HOOD)
Coinbase (NASDAQ:COIN) and Robinhood (NASDAQ:HOOD) saw massive declines in their stock prices after FTX announced that it would file for Chapter 11 bankruptcy. Both platforms draw meaningful amounts of revenue through crypto trades.
Coinbase CEO Brian Armstrong stated that Coinbase does not have “significant exposure” to FTX, while Robinhood wasn’t so lucky. During May, former FTX CEO Sam Bankman-Fried disclosed a 7.6% stake in HOOD through his investment vehicle, Emergent Fidelity Technologies. Following the collapse of FTX, Bloomberg reported that Bankman-Fried’s HOOD stake was held through Alameda Research, the hedge fund closely tied to FTX, and may have been used for collateral on loans. As a result, it’s likely that Alameda has or will liquidate the stake, putting pressure on Robinhood.
Furthermore, FTX’s collapse has put a dark cloud over the entire crypto industry, making investors more cautious about storing their crypto on exchanges. Bitcoin outflows on centralized exchanges recently hit a historic high, clocking in at 742,401 coins between Nov. 9 and Nov. 15.
On top of that, declines in the stock and crypto markets have discouraged traders from making trades, threatening both Coinbase and Robinhood’s revenue from transaction fees. As long as the stock and crypto markets continue to sink, COIN and HOOD should be avoided.
Digital World Acquisition (DWAC)
Special purpose acquisition company (SPAC) Digital World Acquisition (NASDAQ:DWAC) seeks to merge with former President Donald Trump’s Trump Media & Technology Group (TMTG), which seeks to become a Twitter-esque social media platform. However, the shareholder vote to approve the business combination has been pushed back several times this year due to an ongoing investigation by the Securities and Exchange Commission (SEC).
In June, directors of the company received subpoenas relating to an alleged leakage of the deal announcement to investment firm Rocket One Capital before it was made public. Before that, Sen. Elizabeth Warren personally sent a letter to SEC Chairman Gary Gensler, alleging that Trump discussed a SPAC target with Digital World CEO Patrick Orlando before the SPAC went public, violating securities laws in the process. Gensler took heed and began the investigation in December 2021.
On Nov. 22, Digital World received the necessary 65% of shareholders’ approval to delay the merger deadline until Sept. 8, 2023. The company had previously warned that a failure to approve to the delay would cause it to “be forced to liquidate.”
Now, with Trump confirming that he will run for president in 2024, the future of DWAC is more uncertain than ever. If DWAC is unable to get the clear from the SEC, then there is no future for a merger with TMTG.
Lucid Motors (LCID)
Lucid’s (NASDAQ:LCID) flagship EV is the Air sedan, with a starting price of $87,400. That cements Lucid as a luxury EV maker that seeks to compete with the likes of Tesla. However, like many other EV makers, Lucid has ran into a series of production challenges this year.
During Q3, the company only produced 2,282 vehicles, which is in line to fulfill its full-year guidance of between 6,000 and 7,000 vehicles. As a startup, Lucid is still capital extensive and reported a net loss of $530 million during the quarter. Making matters worse, reservations have fallen lower, with “over 34,000” as of Nov. 7 compared to “over 37,000” on Aug. 3. If it wasn’t for the company’s connection to Saudi Arabia, which owns more than 60% of Lucid, it’s likely that LCID would be trading much lower today. The Middle Eastern country has also recently agreed to invest another $915 million into Lucid.
Still, with higher rates, unprofitable Lucid is especially at risk of further price declines. Furthermore, LCID still carries an extremely high price-to-sales ratio of about 45x. In comparison, Tesla (NASDAQ:TSLA) trades at about an 8x multiple, Ford (NYSE:F) at less than 0.5x, and Rivian (NASDAQ:RIVN) at 25x.
Nikola (NASDAQ:NKLA) has sought to distance itself from former CEO Trevor Milton following his departure. In October, Milton was found guilty on three counts of fraud and could face up to 25 years in prison. Last December, the company also agreed to pay a $125 million fine for misleading investors.
With Milton in the past, Nikola has sought to recreate itself as a reliable electric and hydrogen-powered vehicle company. Still, it seems even CEO Mark Russell has his doubts about the company. Russell has sold about 75,000 shares almost every day since Sept. 15. Granted, these shares were all received at a discount as part of a compensation plan, although it would reflect confidence if Russell held on to his shares instead of immediately selling them.
Nikola is currently focused on expanding “hydrogen supply opportunities” across the country. However, it has not yet produced a sellable hydrogen fuel cell electric vehicle (FCEV). It expects to produce 17 Tre FCEV beta trucks by the end of the year, entering an unproven technology landscape.
Creating a hydrogen supply network across the country is no easy task, not to mention capital-intensive, and some investors are worried that Nikola is getting ahead of itself. With a net loss of $236 million during Q3, it seem that the road ahead for NKLA is extremely uncertain.
MicroStrategy (NASDAQ:MSTR) operates as a software company, but that’s hardly what investors know it as. As of Q3, the company owned about 130,000 Bitcoins, equivalent to 0.62% of all coins outstanding. As mentioned earlier, the price of Bitcoin recently fell below $17,000 for the first time since November 2020, contributing to the possibility that MicroStrategy could post record impairment charges during Q4. Since the beginning of the year, MicroStrategy has reported about $2 billion in impairment charges.
Meanwhile, new CEO Phong Le has made it clear that the company will continue to place a long-term emphasis on Bitcoin, explaining that:
“We have not sold any Bitcoin to date. To reiterate our strategy, we seek to acquire and hold Bitcoin for the long term. And we do not currently plan to engage in sales of Bitcoin. We have a long-term time horizon and the core business is not impacted by the near-term Bitcoin price fluctuations.”
Many investors own and see MSTR as a substitute to Bitcoin. It would make much more sense for investors to just own Bitcoin outright instead of MSTR, as there is no management or governance risk in holding Bitcoin.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) has witnessed its market capitalization fall by over 90% this year. The electric vehicle (EV) startup seeks to establish itself as a leader in the space, although internal compensation could ultimately hurt shareholders in the long run.
Mullen became a public entity last November after completing a reverse merger with Net Element. At the time, there were only 51.17 million shares of MULN outstanding. As of Nov. 17, that figure had ballooned to 1.43 billion shares, meaning that shares outstanding have increased by 2,711% in about a year!
When shares outstanding increase, investors get diluted, detrimentally affecting share price and lowering ownership and voting rights. So, where exactly are these shares going? Right into the pockets of management. In October, CEO David Michery received 46 million shares at no cost, likely because he completed a milestone highlighted in his stock award plan. During the same month, Mullen announced that it would resell up to 900 million shares, which includes 527 million shares that are issuable upon conversion of outstanding dilutive warrants.
When it seems as if management is taking advantage of shareholders, investors should stay far away, making MULN an obvious sell.
Shares of Roblox (NYSE:RBLX) are down over 60% this year, and the metaverse platform’s third-quarter earnings led yet another decline for RBLX stock. While the company reported average daily active users growth of 24% to 58.8 million users and a 10% revenue growth to $702 million, it recorded yet another quarter of unprofitability. Companies could slide by with unprofitable quarters when rates were at or near zero, but in today’s macroeconomic environment, profitability matters more than ever.
Today, Roblox is a far cry from its IPO market capitalization of $80 billion. As more people return to the public following years of staying inside from the pandemic, shares of RBLX could fall even further if usage declines. The company also runs the risk of “being just a trend,” as consumer entertainment preferences in the next few years will be highly unpredictable.
What’s more, RBLX stock is still trading at a generous price to sales (P/S) ratio of 8.3x in relation with its competitors. Activision Blizzard (NASDAQ:ATVI) trades at a P/S of 7.9x, while Electronic Arts (NASDAQ:EA) trades at 5x, suggesting more possible downside for Roblox.
There is no debate as to whether a Peloton (NASDAQ:PTON) is a luxury product, as its flagship bike product carries a starting price tag of $1,495, as well as monthly subscription fees of $44. During times of high inflation, customers are less willing to spend on luxury products.
That’s evidenced by Peloton’s fiscal Q1 revenue of $616.5 million, down 23% YOY and falling well short of the analyst estimate of $650.1 million. Additionally, the at-home fitness company reported an EPS loss of $1.20 versus the estimate for a loss of 64 cents. Peloton noted in its earnings that:
“Given macro economic uncertainties we believe near-term demand for Connected Fitness hardware is likely to remain challenged.”
Earlier this year, founder and former CEO John Foley stepped down in the midst of a cost reduction program and layoffs equivalent to 20% of staff. It’s never a good signal when the founder steps down. Furthermore, Peloton’s popularity has taken a plunge since the pandemic, with many looking to resell their equipment. A quick internet search shows a Peloton group for reselling products that has over 215,000 members.
With a luxury product that can easily be replaced by a traditional gym membership, PTON stock should be sold.
Uber (UBER) and Lyft (LYFT)
Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) are ubiquitously known as the two most popular ride-hailing companies in the U.S. However, LYFT is down over 70% this year, while UBER is down over 30%. Waning consumer demand caused by higher inflation may cause these two stocks to fall even more.
During Q4, Uber reported an EPS loss of 61 cents, equivalent to a net loss of $1.2 billion, versus the estimate for a loss of 22 cents. $512 million of the loss was attributable to drawdowns in the value of investments. In addition, gross bookings for mobility and delivery were both $13.7 billion and both fell short of analyst estimates.
Meanwhile, Lyft reported a profitable Q3 with an adjusted EPS of 10 cents versus the estimate for 7 cents. The company previously reduced its workforce by 13% in light of a possible recession. While Lyft is profitable, the company still faces heavy competition from Uber, setting the picture for an ongoing competitive battle.
The two companies also face regulatory pressure from the Department of Labor ( ). Some analysts predict that President Joe Biden will eventually try to classify Uber and Lyft’s drivers as employees, which would provide them with benefits like health insurance and overtime pay. That would mean higher costs for the two companies, which could be partially offset, to the disdain of customers, by even higher ride prices.
Former fan favorite Upstart (NASDAQ:UPST) has declined by 80% this year in light of rising rates that have made loan payments more expensive. The company characterizes itself as a “leading AI lending marketplace” that partners with banks and credit unions to increase access to affordable loans. Before third-quarter earnings were released, Upstart announced that it would lay off 7% of its workforce.
“Given the challenging economy, we are making this difficult decision for the long-term health of the company,” said spokesperson Mike Nelson. “We do not expect any further layoffs, and continue to hire for roles that are strategic to our business.”
During Q3, Upstart reported drawdowns in several key metrics. Total fee revenues were $179 million, down 15% YOY, while bank partner origination volume was $1.9 billion, down 48% YOY. In addition, the company reverted to unprofitability, reporting an adjusted net loss of $19.3 million compared to net income of $57.4 million a year ago.
With interest rates expected to rise further, loan payments will only become more expensive. Customers have also been less willing to spend and borrow money due to high inflation rates. With that in mind, UPST stock is at high risk of declining further.
WeWork (NYSE:WE) operates as a co-working spaces provider by signing long-term leases with building owners, redesigning the interior and then subleasing them out to interested renters. However, with the popular trend of working-from-home (WFH) that was introduced during the pandemic, WeWork runs the risk of participating in a declining industry.
During its third-quarter earnings, the company announced that it would shut down operations in 40 of its “underperforming locations” in the U.S. WeWork did not specify the exact locations, although the company experienced “slower than expected growth” in the U.S., Canada, and Japan during the quarter. The reduction of the 40 locations is expected to both reduce revenue and expenses.
Meanwhile, revenue tallied in at $817 million, up 24% YOY but falling short of analyst estimates. Revenue growth also declined from 37% growth last quarter. Profitability fell short too, as WeWork posted an EPS loss of 75 cents versus the estimate for a loss of 48 cents.
Since the beginning of the year, the company has burned through $915 million of cash and only has $460 million left. Luckily, WeWork has access to about $1 billion of financing from SoftBank (OTCMKTS:SFTBY), which owns about two-thirds of the company. An equity offering would almost certainly emerge if it wasn’t for that relationship.
Ultimately, WE stock should be heavily scrutinized as long as the trend of WFH remains intact.
Zillow (Z) and Redfin (RDFN)
With higher interest rates, 40-year high inflation and record-high median sales prices, consumers are finding it harder than ever to purchase a property. On top of that, the National Home Ownership Affordability Monitor Index is near all-time lows going back to 2007.
As a result, it isn’t just brick-and-mortar real estate companies that are suffering — Zillow (NASDAQ:Z) and Redfin (NASDAQ:RDFN) have felt the pain as well. The combination of these poor macroeconomic factors has resulted in extremely hesitant homebuyers.
The first red flag showed up when Zillow announced that it would exit the iBuying business by shutting down Zillow Offers, which resulted in a 25% employee reduction. Zillow Offers would act as a homebuyer and buy homes to resell at a potential markup. Redfin recently did the same by shutting down its home-flipping business and laying off 13% of its staff.
With affordability at multi-year lows and interests rates expected to rise even more, it would be wise for investors to stay away from Z and RDFN stock.
On the date of publication, Eddie Pan did not hold (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 InvestorPlace.com Publishing Guidelines.