Fears surrounding the resurgence of COVID-19 cases worldwide are expected to exert downward pressure on the stock market in the near term. So, we think it could be wise to avoid Airbnb (ABNB), AMC Entertainment (AMC), United Airlines (UAL), and Norwegian Cruise (NCLH) because they are vulnerable to significant price declines on their weak financials and bleak growth prospects. So, let’s evaluate these names’ prospects more closely.
The COVID-19 Delta variant has already driven up infections internationally. And this month the United States also witnessed a resurgence of COVID-19 cases, through the spread of the Delta variant. According to CDC data, the United States has averaged more than 26,000 new cases per day over the past seven days, up from an 11,000 cases per day seven-day average a month earlier.
Although there has been solid progress on the vaccination front in the U.S., investors are concerned about the possibility of the hyper-infectious variant of the COVID-19 virus delaying economic recovery. Based in-part on this concern, the stock market has been witnessing the most intense selling pressure since October, with airlines, hotels, and travel-related stocks the most affected. All three major benchmark indexes have seen a level of correction over the past week.
Against this backdrop, we think investors should avoid fundamentally weak stocks Airbnb Inc. (ABNB), AMC, Entertainment Holdings Inc. (AMC), United Airlines Holdings Inc. (UAL), and Norwegian Cruise Line Holdings Ltd. (NCLH). They could suffer a major pullback on their weak fundamentals and growth prospects.
Airbnb Inc. (ABNB)
San Francisco-based ABNB provides a platform on which guests can book stays and experiences worldwide. The company's marketplace concept allows hosts and guests to book venues and activities online or via mobile devices. In addition, its infrastructure can support international payments, multilingual real-time community safety and assistance, and city-specific product needs.
In March, the company priced a private offering of $2 billion of senior convertible notes, due 2026. ABNB plans to use the approximately $1.98 billion in net proceeds to repay indebtedness.
ABNB’s operating expenses increased 14.3% year-over-year to $1.34 billion in the first quarter, ended March 31, 2021. Its operating loss grew 37.3% from its year-ago value to $446.95 million, while its net loss surged 244.2% year-over-year to $1.17 billion over this period. The company’s loss per share increased 50% year-over-year to $1.95.
ABNB’s EPS is expected to remain negative in its fiscal years 2021 and 2022. The stock has declined 10.8% over the past month and 19.7% over the past three months.
ABNB’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ABNB has been rated a D grade for Value and Stability. Within the F-rated Travel- Hotels/Resorts industry, it is ranked #12 of 19 stocks.
To see additional POWR Ratings for Growth, Sentiment, Quality, and Momentum for ABNB, click here.
AMC Entertainment Holdings, Inc. (AMC)
AMC is a movie theater chain that is based in Leawood, Kans., that operates through two segments--domestic and international markets. It licenses first-run films from distributors controlled by film production corporations and independent distributors on a film-by-film and theater-by-theater basis. It operates 1,004 theatres and 11,041 screens across 15 countries.
Last month, AMC agreed with Mudrick Capital Management, L.P. to raise $230.5 million from the sale of 8.5 million shares of its common stock. AMC will use the proceeds from the transaction to buy more theater leases and seek deleveraging possibilities. However, selling shares could result in the dilution of shareholder value.
AMC’s total non-GAAP revenue declined 84.3% year-over-year to $147.4 million, while its operating loss came in at $427.8 million in the first quarter, ended March 31, 2021. The company reported a $566.9 million net loss, and its loss per share came in at $1.42 over this period.
The stock could not beat the consensus EPS estimates in any of the trailing four quarters. In addition, analysts expect AMC’s EPS to decline at a 217% rate over the next five years. AMC shares have declined 27.3% over the past month.
AMC’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.
The stock has an F grade for Value, Sentiment, and Stability. AMC is ranked #6 of 8 stocks in the F-rated Entertainment- Movies/Studios industry.
Click here to see the additional POWR Ratings for AMC. (Quality, Momentum, and Growth).
United Airlines Holdings Inc. (UAL)
UAL operates air transportation services in North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company's mainline and regional fleets carry people and freight. It also sells fuel and provides third-party catering, ground handling, and maintenance services. UAL is based in Chicago.
During the second quarter, ended June 30, 2021, UAL’s operating expenses increased 84.5% year-over-year to $5.74 billion. It reported a $270 million operating loss for the period. The company reported a $434 million net loss, while its loss per share amounted to $1.34 over this period.
The company's EPS is expected to remain negative in the current year. Also, UAL failed to beat the consensus EPS estimates in each of the trailing four quarters. Analysts expect its EPS to decline at a 25.4% rate over the next five years. UAL's stock has declined 15.7% over the past month and 7.9% over the past three months.
It is no surprise that UAL has an overall D rating, which equates to Sell in our POWR Ratings system. The stock also has an F grade for Growth and Stability, and a D for Sentiment. In the F-rated Airlines industry, it is ranked #25 of 29 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the UAL rating for Momentum, Value, and Quality here.
Norwegian Cruise Line Holding Ltd. (NCLH)
NCLH is a global cruise company that offers various features, amenities, and activities, including multiple dining venues, bars and lounges, spas, casinos, and retail shopping areas. The Miami, Fla., company operates under the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brand names.
Last month, NCLH announced a U.S voyage resumption plan across its three brands, beginning in July 2021 and phasing in through early 2022, from multiple U.S. ports. However, given the uncertain environment resulting from the resurgence of COVID-19 cases globally, its voyage plans could face challenges.
NCLH’s revenue declined 99.8% year-over-year to $3.1 million in the first quarter ended March 31, 2021. Its operating loss came in at $571.27 million. The company reported a $1.37 billion net loss of, while its loss per share amounted to $4.16 over this period.
The company’s EPS is expected to decline at a 24.1% rate over the next five years. In addition, analysts expect NCLH’s revenue to decline 20.8% in the current year. The stock has declined 21.9% over the past month and 11.5% over the past three months.
NCLH has an overall F rating, which equates to Strong Sell in our POWR Ratings system. It also has an F grade for Value, Stability, and Sentiment. NCLH is ranked #4 of 4 stocks in the F-rated Travel - Cruises industry.
Beyond the POWR Ratings grades I have just highlighted, one can see the NCLH ratings for Growth, Momentum, and Quality here.
ABNB shares were trading at $139.62 per share on Wednesday morning, up $3.53 (+2.59%). Year-to-date, ABNB has declined -4.89%, versus a 16.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.