The Consumer Price Index (CPI) rose 9.1% year-over-year in June, surpassing the 8.8% Dow Jones estimate. The hotter-than-expected inflation data could make the Federal Reserve even more aggressive in raising the benchmark interest rates. The Fed officials have signaled to lift interest rates by 75 basis points later this month.
As rising interest rates drive borrowing costs higher for businesses, companies possessing low liquidity could struggle to stay afloat. David Trainer, the founder and CEO of research firm New Constructs, wrote in a research note, “Time is running out for cash-burning companies kept afloat with easy access to capital.”
“These companies are at risk of going bankrupt if they cannot raise more debt or equity, which is not as easy as it used to be. As the Fed raises interest rates and ends quantitative easing, access to cheap capital is drying up quickly,” he added.
Against the backdrop, it could be wise to get rid of potential bankruptcy stocks Peloton Interactive, Inc. (PTON), Carvana Co. (CVNA), and Freshpet, Inc. (FRPT), which do not have enough cash to fund their operations for long. These stocks are rated F “Strong Sell” in our proprietary rating system.
Peloton Interactive, Inc. (PTON)
PTON provides interactive fitness products in North America and internationally. The company offers fitness products with streams of live and on-demand classes. In addition, it offers connected fitness subscriptions for users and access to various other services through the Peloton Digital app. It has more than 6.7 million members.
On July 12, PTON announced the suspension of operations at its Tonic Fitness Technology, Inc. facility through the remainder of 2022. The company acquired Tonic in October 2019. Exiting all its owned-manufacturing operations might affect the company’s business growth and revenues.
In the fiscal 2022 third quarter ended March 31, 2022, PTON's revenue decreased 23.6% year-over-year to $964.30 million, and its gross profit declined 58.6% year-over-year to $184.20 million. The company’s operating expenses increased 100.6% from the year-ago value to $920 million. Its adjusted EBITDA loss amounted to $194 million, compared to a $63.20 million gain reported in the prior-year period.
In addition, the company's net loss and net loss per share attributable to common stockholders came in at $757.10 million and $2.27, widening 8,703.5% and 7,466.7% year-over-year, respectively. PTON's had $873.9 million of cash and cash equivalents as of March 31, 2022, versus $1,134.8 million as of June 30, 2021. The company’s free cash flow was negative $204 million for the quarter.
Analysts expect PTON's loss per share for the fiscal 2022 fourth quarter (ended June 2022) to come in at $0.74, worsening 32.3% from the same period in 2021. The consensus revenue estimate of $683.04 million for the to-be-reported quarter indicates a decline of 27.1% year-over-year. Also, the company has missed the consensus revenue estimates in three of the trailing four quarters.
The stock has declined 72% over the past six months and 75.9% year-to-date to close the last trading session at $8.48.
PTON's POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PTON has a grade of F for Stability, Quality, and Sentiment. Within the Consumer Goods industry, it is ranked #59 of 60 stocks. Click here to see PTON's POWR Ratings for Momentum, Growth, and Value.
Carvana Co. (CVNA)
CVNA operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform enables customers to research and identify a vehicle, inspect it using its 360-degree vehicle imaging technology, obtain financing and warranty coverage, purchase the vehicle, and schedule delivery or pick-up from their electronic devices.
In April, CVNA upsized from the previously announced offering size of $2.28 billion and priced the private placement of $3.28 billion in an aggregate amount of its 10.25% senior unsecured notes due 2030. The notes will bear interest at a rate of 10.25% per year, payable semi-annually on May 1 and November 1. The notes offering is expected to increase the company’s debt and interest.
CVNA's gross profit declined 11.8% year-over-year to $298 million in the fiscal 2022 first quarter ended March 31, 2022. Its selling, general and administrative expenses amounted to $727 million, up 83.1% year-over-year. The company’s adjusted EBITDA loss stood at $364 million, compared to a $37 million loss reported in the prior-year period.
Also, its net loss and net loss per share of Class A common stock came in at $260 million and $2.89, worsening 622.2% and 528.3% year-over-year, respectively. As of March 31, 2022, the company had cash and cash equivalents of $247 million, compared to $403 million as of December 31, 2021.
Analysts expect CVNA’s loss per share to widen 296.2% from the prior-year period to $1.51 for the fiscal 2022 third quarter (ending September 2022). Furthermore, the $1.29 consensus loss per share estimate for the fourth quarter (ending December 2022) represents a worsening of 26.2% year-over-year.
The stock has plunged 91.1% year-to-date and 93.2% over the past year to close the last trading session at $21.25.
CVNA’s POWR Ratings reflect this bleak outlook. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
CVNA has an F grade for Stability, Growth, Sentiment, and Quality. Within the F-rated Internet industry, it is ranked #65 of 66 stocks. To see additional POWR Ratings (Momentum and Value) for CVNA, click here.
Freshpet, Inc. (FRPT)
FRPT manufactures and markets natural fresh meals and treats for dogs and cats in the United States, Canada, and Europe. The company markets and sells its products under the Freshpet brand and Dognation and Dog Joy label through various retail classes, including grocery, mass, club, pet specialty, and online.
In the fiscal 2022 first quarter ended March 31, 2022, FRPT’s adjusted SG&A expenses increased 40.9% year-over-year to $50.53 million. Its loss from operations widened 63.4% year-over-year to $15.88 million. Its adjusted EBITDA stood at $5.10 million, compared to the year-ago value of $7.80 million.
In addition, the company’s net loss and net loss per share attributable to common stockholders came in at $17.54 million and $0.40, worsening 61.1% and 53.9% year-over-year, respectively. As of March 31, 2022, its cash and cash equivalents stood at $29.73 million, compared to $72.79 million as of December 31, 2021.
Analysts expect FRPT's loss per share for the fiscal 2022 second quarter (ended June 2022) and fiscal year 2022 (ending December 2022) to come in at $0.14 and $0.61, respectively. Furthermore, the company has missed the consensus EPS estimates in each of the trailing four quarters.
FRPT’s shares have slumped 50.9% year-to-date and 69.6% over the past year to close the last trading session at $46.66.
FRPT's POWR Ratings reflect its poor prospects. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
FRPT has a grade of F for Value and D for Stability, Sentiment, and Quality. It is ranked #81 of 86 stocks in the Food Makers industry. Click here to see additional POWR Ratings (Growth and Momentum) for FRPT.
PTON shares were trading at $9.03 per share on Monday afternoon, up $0.55 (+6.49%). Year-to-date, PTON has declined -74.75%, versus a -17.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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