Shares of online fashion retailer Farfetch (NYSE:FTCH) have continued to decline in today’s session. In fact, shares of FTCH stock hit a fresh new all-time low today on news that Moody’s downgraded the company’s credit rating to Caa2. This rating downgrade is significant, as it means the company’s ability to raise capital in the debt markets will likely be greatly hindered. Caa2 is well into junk territory as The Business of Fashion notes and, given where interest rates are, this is a situation no company wants to be in currently.
This downgrade appears to be the result of a dim view of Farfetch’s financial position and growth prospects. Moody’s appears to view the company’s declining cash flow numbers and the cancellation of its earnings results in late November as big red flags. In many ways, the market had already priced some of this in, given how FTCH’s long-term stock chart appears. However, it’s also clear that a decline of nearly more than 10% in FTCH stock today means investors may not have thought the situation was this bad.
Let’s dive more into why this downgrade materialized — and where investors should go from here.
Why Is FTCH Stock Plummeting Today?
Any time Moody’s downgrades a company’s credit rating, investors are going to take notice. For growth companies that require capital, such moves can often be the kiss of death, as companies seek ways to stay afloat.
Given the continued decline in FTCH stock, share issuances have also been seemingly taken off the table by the market. That’s partly because today’s decline has pushed FTCH stock well below the $1 threshold, which may make it more difficult for the company to obtain capital. Thus, unless Farfetch does something drastic — and fast — its survival is now more uncertain then ever.
Indeed, Farfetch is in a troubling position right now and investors are clearly jumping ship. This will be a stock to watch in the coming days. Looking forward, we’ll have to see how management responds to these dire concerns.
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On the date of publication, Chris MacDonald 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.
