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This story originally appeared on StockNews
Although the stock market has bounced back after the plunge led by the Delta variant of the coronavirus, certain stocks should be avoided. Ultra-popular stocks NIO (NIO), AMC Entertainment Holdings (AMC), and Sundial Growers (SNDL) have witnessed exceptional rallies this year in part due to social media hype, but their poor fundamentals and hefty losses could lead to a dramatic fall in their share prices in the near term. So, we believe these stocks are best avoided now.
After a volatile week, all the major U.S. benchmark indices bounced back ahead of a key July labor market report. The S&P 500 finished at a new all-time high of 4,429.10 on Thursday, as energy and travel stocks recovered after struggling over the past couple of weeks on investors’ concerns over the rapid spread of the Delta variant of the coronavirus.
While the major stock market indexes indicate a bullish sentiment, not all popular stocks are good bets now. Although the social-media-hype led to the skyrocketing rally of some stocks, their weak fundamentals and financials could trigger a brutal decline in their share prices.
Popular meme stocks NIO Inc. (NIO), AMC Entertainment Holdings, Inc. (AMC), and Sundial Growers Inc. (SNDL) enjoyed the limelight solely because of the social-media hype. However, since their current price levels do not match their bleak growth potential and underlying fundamentals, we believe these stocks are best avoided now.
NIO Inc. (NIO)
NIO is a China-based manufacturer and seller of smart, high-performance electric vehicles. It is involved in producing smart electric sedans and five, six, and seven-seater electric SUVs. In addition, the company provides energy and service packages, pick up, charging, and return services, as well as battery swapping services.
In July, the company delivered 7,931 vehicles, compared to 8,083 vehicles in June 2021. Its cumulative deliveries of the ES8, ES6, and EC6 stood at 125,528 vehicles as of July 31, 2021. NIO’s five-seater high-performance premium smart electric SUV deliveries reached 3,669 in July, compared to 3,775 in June.
NIO’s vehicle sales increased 489.8% year-over-year to RMB7,405.8 million ($1,130.3 million) in the first quarter ended March 31, 2021. However, the company’s non-GAAP loss from operations came in at RMB199.4 million ($30.4 million), and non-GAAP net loss amounted to RMB 354.6 million ($54.1 million). Its non-GAAP loss per share stood at RMB0.23 ($0.04) over this period. Also, NIO’s selling, general, and administrative expenses amounted to RMB1,197.2 million ($182.7 million), representing an increase of 41.1% from the first quarter of 2020.
Analysts expect NIO’s EPS to decline at the rate of 0.2% per annum over the next five years. While the stock has gained 227.6% over the past year, it has declined 7.5% year-to-date and 21.7% over the past six months. And it is currently trading 31.9% below its 52-week high of $66.99, indicating short-term bearishness.
NIO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NIO has a C grade for Growth, D for Sentiment, and an F for Stability. Of the 57-stocks in the C-rated Auto & Vehicle Manufacturers industry, it is ranked #46.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the NIO ratings for Value, Momentum, and Quality.
AMC Entertainment Holdings, Inc. (AMC)
Based in Leawood, Kansas, AMC is one of the largest movie theater chains in the world. The company offers movie screening, theatrical exhibitions, online ticket booking, food distribution, and other related services. It operated approximately 1000 theatres and 10,700 screens in the United States and worldwide as of March 12, 2021.
In June, AMC agreed with Mudrick Capital Management, L.P. to sell 8.5 million shares of AMC’s Class A Common stock for raising $230.5 million of cash. While AMC plans to use the proceeds from the offering to acquire additional theatre leases and other strategic investments, selling shares could dilute shareholder value.
In the first quarter ended March 31, 2021, AMC’s non-GAAP total revenue declined 84.3% year-over-year to $147.4 million. Its adjusted EBITDA stood at a negative $294.7 million. The company reported a negative $324.8 million free cash flow, compared to a negative $275.7 million in the prior-year period. Moreover, its loss from operations stood at $427.8 million, and its net loss came in at $566.9 million. AMC reported a loss per share of $1.42 for this quarter.
AMC failed to beat the consensus EPS estimates in each of the trailing four quarters. Analysts expect its EPS to remain negative in fiscal 2021 and fiscal 2022. Moreover, its EPS is estimated to decline at the rate of 217% per annum over the next five years. Although AMC has gained 627.8% over the past year, it has declined 42.6% over the past month. It is currently trading 53.9% below its 52-week high of $72.62, which it hit on February 6.
AMC’s weak prospects are apparent in its POWR Ratings also. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. AMC also has a D grade for Growth and Quality, and an F for Stability and Sentiment. Of 8 stocks in the F-rated Entertainment – Movies/Studios industry, the stock is ranked #6.
To see additional POWR Ratings for Value, and Momentum for AMC, click here.
Sundial Growers Inc. (SNDL)
SNDL is involved in the production and sale of cannabis products for the adult-use market in Canada. The company offers flower, pre-rolls, vapes, and other inhalable products under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brand names.
In July, the company completed the previously announced acquisition of all the issued and outstanding common shares of Inner Spirit Holdings Ltd. for $0.30 per Inner Spirit share. Although this acquisition would broaden SNDL’s business and brand network, it could increase its expenses significantly.
During the first quarter, ended March 31, 2021, SNDL’s net revenue decreased 29.4% year-over-year to CAD9.89 million ($7.98 million), primarily due to lower sales volume. The company’s negative gross margin under the cannabis segment came in at CAD3.45 million ($2.78 million). Its net loss from continuing operations increased 205.7% year-over-year to CAD134.45 million ($108.45 million), while its loss per share amounted to CAD0.09 ($0.07 million) over this period.
Analysts expect SNDL’s revenue to decrease 10.6% year-over-year to $45.15 million in the current year. In addition, SNDL failed to beat the consensus EPS estimates in any of the trailing four quarters. Moreover, its EPS is expected to remain negative in fiscal 2021. SNDL’s stock has returned 272.7% over the past nine months. But the stock has declined 13.2% over the past month and is currently trading 79.3% below its 52-week high of $3.96.
SNDL’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. In addition, SNDL has a D grade for Momentum and an F for Sentiment and Value. In the F-rated Medical – Pharmaceuticals industry, the stock is ranked #216 of 219 stocks.
In total, we rate SNDL on eight different components. Beyond what we stated above, we have also given SNDL grades for Stability, Quality, and Growth. Get all the SNDL ratings here.
NIO shares were trading at $43.69 per share on Friday afternoon, down $1.91 (-4.19%). Year-to-date, NIO has declined -10.36%, versus a 19.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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