The major stock market indexes closed higher yesterday as U.S. consumer confidence jumped to a 16-month high. The Conference Board Consumer Confidence Index rose to 127.3 points this month, its highest level since February 2020.
However, the Federal Reserve expects inflation to climb to 3.4% this year, higher than its previous forecast of 2.4%. Also, the Fed now expects to make two interest rate hikes in late 2023 rather than no interest rate hike until 2024, as it previously forecasted. So, the market is expected to continue to witness some volatility. Against this backdrop, we believe several fundamentally weak stocks, which are significantly overpriced, could witness a price pullback in the near-term.
T-Mobile US, Inc. (TMUS), Square, Inc. (SQ), Snap Inc. (SNAP), and NIO Inc. (NIO) look extremely overvalued at their current price levels given their weak-financials and unfavorable growth prospects. So, we think it is wise to avoid these stocks now at all costs.
T-Mobile US, Inc. (TMUS)
Wireless company TMUS provides wireless services to post-paid, pre-paid and wholesale customers. The Bellevue, Wash., company offers services, devices, and accessories under the T-Mobile and Metro by T-Mobile brands through its owned and operated retail stores, app and customer care channels, and its websites.
On May 11, TMUS announced that its direct wholly owned subsidiary, T-Mobile USA, Inc. had agreed to sell $3 billion of senior notes. It intends to use the offering’s proceeds to redeem its 6% senior notes due 2023, 6% Senior notes due 2024 and 5.125% senior notes due 2025 and to refinance its other indebtedness.
The company’s total revenue for the first quarter, ended March 31, 2021, was $19.76 billion, which represents a 2.9% sequential decrease. TMUS’ net income was $933 million, down 1.9% year-over-year. Its EPS came in at $0.74, down 32.7% from the same period last year.
In terms of forward EV/EBIT, TMUS’ 38.65x is 106.2% higher than the 18.74x industry average. Its 65.62x forward non-GAAP P/E is 224.2% higher than the 20.24x industry average.
TMUS’ revenue for the quarter ending September 30, 2021, is expected to come in at $19.81 billion, which represents an 8% year-over-year increase. However, its EPS is expected to decrease 47% year-over-year to $0.53 in the same quarter. The stock has gained only 2.5% over the past month to close yesterday’s trading session at $144.99.
TMUS’ poor prospects are apparent in its POWR Ratings also. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a D grade for Quality and Value. Click here to see the additional POWR ratings for TMUS (Momentum, Growth, Stability, and Sentiment).
TMUS is ranked #19 of 23 stocks in the D-rated Telecom-Domestic industry.
Square, Inc. (SQ)
Together with its subsidiaries, SQ creates tools that enable sellers to accept card payments and provides reporting and analytics and next-day settlement services. Its offerings include hardware products Magstripe reader, contactless and chip reader, and Square Stand, among others. Square is headquartered in San Francisco.
SQ announced the pricing of a $2 billion offering of senior notes on May 18. The company is expected to use the offering’s proceeds to fund its growth activities, which potentially include acquisitions and strategic transactions and capital expenditures.
SQ’s subscription-and-services-based revenue increased 88.3% year-over-year to $557.68 million for the first quarter, ended March 31, 2021, while its hardware revenue increased 39.2% year-over-year to $28.79 million. However, its total operating expenses increased 42.5% year-over-year to $895.77 million, and its total liabilities came in at $9.03 billion, which represents a 25.7% sequential rise.
But the stock seems to be extremely overvalued now. In terms of forward EV/EBITDA, SQ’s 128.29x is 646.7% higher than the 17.18x industry average. Its 5.51x forward EV/S is 28.7% higher than the 4.28x industry average of 4.28x. The stock has gained 11.8% over the past month to close yesterday’s trading session at $248.87. However, it is currently trading 12.1% below its 52-week high of $283.19, which it hit on February 16, 2021.
SQ’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. It has an F grade for Stability, and a D grade for Value and Quality. To see more of SQ’s component grades, click here.
SQ is ranked #88 of 102 stocks in the D-rated Financial Services (Enterprise) industry.
Snap Inc. (SNAP)
Venice, Calif., camera company SNAP is known for its flagship product—Snapchat. The company’s offerings include Spectacles, an eyewear product that connects with Snapchat and captures video from a human perspective, and advertising products such as AR and Snap ads.
A lawsuit was filed against SNAP on behalf of its shareholders who purchased its shares between March 2, 2017, and May 15, 2017. It was alleged that the company withheld potentially negative information from investors about competition with Instagram during its IPO. Consequently, SNAP paid $187 million earlier this year to settle the shareholder lawsuit.
SNAP’s operating loss for the first quarter, ended March 31, 2021, increased 6% year-over-year to $303.61. The company’s net loss for the quarter came in at $286.88 million compared to a $305.94 million loss in the prior-year quarter. Its loss per share came in at $0.19 compared to a $0.21 loss in the year-ago period.
In terms of forward EV/S, SNAP’s 25.90x is 835% higher than the 2.77x industry average. Its 26.43x forward P/S is 1,313.4% higher than the 1.87x industry average.
Analysts expect SNAP’s revenue to increase 55.8% year-over-year to $3.91 billion in its fiscal year 2021. However, its EPS is expected to remain negative in the current quarter (ending June 30, 2021). The stock has gained 8.8% over the past month to close yesterday’s trading session at $67.57. It is currently trading 8.2% below its 52-week high of $73.59.
SNAP has an F overall rating, which translates to Strong Sell in our proprietary rating system. It has a D grade for Value, Quality, and Stability. Click here to see SNAP’s ratings for Growth, Sentiment, and Momentum as well.
SNAP is ranked #68 out of 72 stocks in the F-rated Internet industry.
NIO Inc. (NIO)
Headquartered in Shanghai, China, NIO designs, develops, manufactures, and sells smart electric vehicles. It offers five-, six-, and seven-seater electric SUVs, and smart electric sedans.
On March 26, 2021, NIO suspended vehicle production at its JAC-NIO manufacturing plant in Hefei for five working days due to a semiconductor shortage.
NIO’s total revenues increased 20.2% sequentially to $1.22 billion for the first quarter ended March 31, 2021. However, its loss from operations for the quarter came in at $45.17 million, compared to RMB 931.39 million ($144.11 million) in its fiscal fourth quarter (ended December 31, 2020). Its net loss came in at $68.85 million compared to RMB 1.69 billion ($261.48 billion) in the prior-year quarter. Its loss per ADS increased 89.2% year-over-year to $0.48.
In terms of forward EV/S, NIO’s 14.16x is 801.9% higher than the 1.57x industry average. The stock’s 15.24x forward P/S is also higher than the 1.34x industry average.
The company’s revenue is expected to increase 99.3% year-over-year to $1.39 billion for the quarter ending September 30, 2021. However, its EPS is expected to remain negative in 2021 and 2022. The stock has gained only 3.3% year-to-date to close yesterday’s trading session at $50.34.
NIO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. It also has an F grade for Stability, and D grade for Quality, Sentiment, and Value. Click here to see NIO’s ratings for Growth and Momentum as well.
NIO is ranked #48 of 58 stocks in the Auto & Vehicle Manufacturers industry.
Click here to check out our Automotive Industry Report for 2021
TMUS shares were trading at $144.82 per share on Wednesday morning, down $0.17 (-0.12%). Year-to-date, TMUS has gained 7.39%, versus a 15.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand.
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