Tighter lending standards and high interest rates will likely push the economy into a recession this year. Therefore, it might be a good idea to sell the fundamentally weak shares of Owens & Minor (OMI), ASOS (ASOMY) and Kaleyra (KLR). Keep reading….
Although inflation has shown signs of easing, it is still far from the Federal Reserve’s long-term target. The Fed will likely raise the interest rate at its next policy meeting scheduled for this week. Tighter lending standards and high interest rates are expected to tip the economy into a recession this year.
In this environment, it might be wise to avoid the fundamentally weak stocks of Owens & Minor, Inc. (WATER), ASOS Plc (ASOMY) and Kaleyra, Inc. (KLR).
Let’s see why the stock market should be under pressure this year.
March consumer price index (CPI) data confirmed a downward trend in inflation, prices increased 0.1% sequentially and 5% year-on-year in March. However, core consumer prices, which exclude food and energy products, rose 0.4% sequentially and 5.6% year-on-year. Moreover, the US economy added 236,000 jobs in Marchindicating a strong labor market.
Publish interest rate hike of a quarter of a percentage point last month; the benchmark federal funds rate is now between 4.75% and 5%, the highest level since September 2007. According to several economists, the Federal Reserve offer a rate of 25 basis points rise this week, raising the fed funds rate above 5% for the first time since mid-2007.
Minutes from the Fed’s March meeting show staff think there could be a mild recession this year. The summary of the meeting said: “Given their assessment of the potential economic effects of recent developments in the banking sector, the staff projection at the time of the March meeting included a mild recession beginning later this year, with a recovery in over the next two years.”
Given these factors, it might make sense to avoid the stocks mentioned above. Let’s dive deeper into their fundamentals.
Owens & Minor, Inc. (WATER)
OMI operates as a healthcare solutions company. It operates in two segments, Products & Healthcare Services and Patient Direct. The Products & Healthcare Services segment offers a portfolio of products and services to healthcare providers and manufacturers. The Patient Direct segment provides products and services for home care and delivery in the treatment of diabetes, home respiratory therapy and treatment of obstructive sleep apnea.
18.35% IMO over 12 months Gross margin is 67% lower than the industry average of 55.66%. Its capex/sales of 1.59% year-over-year is 65.7% below the industry average of 4.63%.
OMI’s adjusted operating income for the fourth quarter ended December 31, 2022 decreased 20.9% year-over-year to $67.16 million. Its adjusted net profit fell 64.6% from the year-ago quarter to $21.71 million. Additionally, its adjusted EPS fell 65.4% year-over-year to $0.28.
Analysts expect OMI’s EPS for the quarter ended March 31, 2023 to be negative. Its revenue for the same quarter is expected to decline 0.1% year-over-year to $2.40 billion. Over the past year, OMI’s stock has fallen 57.7% to close the last trading session at $15.54.
OMI’s weak prospects are reflected in its POWR Rankings. The stock has an overall D rating, which equates to a sell in our proprietary rating system. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked No. 109 out of 141 stocks in the D rating Medical – Devices and Equipment industry. It has an F rating for sentiment and a D for growth. Click here to see IMO’s other ratings for Value, Momentum, Stability and Quality.
Asos Plc (ASOMY)
Based in London, UK, ASOMY operates as an online fashion retailer. It offers feminine and masculine products. The Company sells its products under the brands ASOS Design, ASOS Edition, ASOS Luxe, ASOS 4505, Collusion, Reclaimed Vintage, Topshop, Topman, Miss Selfridge, HIIT, AsYou, Dark Future, UNRVLLD/SPPLY, Crooked Tongues, Daysocial, Actual and The Weekend Collective brands.
ASOMY’s EBITDA margin of 0.78% over the last 12 months is 93.1% below the industry average of 11.40%. Its trailing 12-month EBIT margin is negative 0.27% compared to the industry average of 7.79%. Additionally, capex/sales of 1.87% YoY is 41.8% below the industry average of 3.21%.
For the year ended August 31, 2022, ASOMY’s gross profit decreased 3.3% from the prior year period to £1.72 billion (£2.16 billion). of dollars). Its operating loss was £9.80 million ($12.31 million), compared to an operating profit of £190.10 million ($238.86 million) there. one year old.
In addition, its loss for the year attributable to owners of the parent company amounted to £30.80 million ($38.70 million), compared to the profit for the year attributable to owners of the parent company of £128.40 million ($161.33 million) in the year- ago period.
Over the past year, the stock has fallen 45.8% to close the last trading session at $9.33.
ASOMY’s POWR ratings reflect this bleak outlook. The stock has an overall D rating, which is equivalent to a sell in our proprietary rating system.
In category F the Internet industry, it is ranked #48 out of 65 stocks. It has a D rating for growth, sentiment and quality. To view ASOMY’s other ratings for Value, Momentum and Stability, Click here.
Kaleyra, Inc. (KLR)
Based in Milan, Italy, KLR provides mobile communication services to financial institutions, e-commerce players, OTTs, software companies, logistics service providers, healthcare providers and retailers, as well as to other organizations around the world.
On April 3, 2023, KLR announced that it had received written notice from the New York Stock Exchange that the company no longer met the standards for continued listing set forth in Section 802.01B of the NYSE Listed Company Handbook, the The company’s average capitalization over a period of 30 consecutive trading days was less than $50 million. At the same time, its last reported equity was less than $50 million.
As of March 31, 2023, KLR’s 30-trading-day average market capitalization was approximately $31.50 million and its last reported equity was $42.20 million as of December 31, 2022.
KLR’s gross profit margin of 20.67% over the last 12 months is 59% below the industry average of 50.37%. Its trailing 12-month EBIT margin is negative 11.13% compared to the industry average of 4.53%. Additionally, capex/sales of 0.62% YoY is 74.1% below the industry average of 2.39%.
KLR’s adjusted gross profit for the fourth quarter ended December 31, 2022 decreased 16.5% year-over-year to $19.01 million. Its total operating expenses increased 187.8% year over year to $74.22 million. The company’s non-GAAP net loss was $4.42 million, compared to non-GAAP net income of $3.91 million in the same period a year earlier.
Additionally, its non-GAAP loss per share was $0.10, compared to non-GAAP EPS of $0.08 in the same period a year ago. Additionally, its adjusted EBITDA was down 74.3% year-over-year to $2.47 million.
Analysts expect KLR’s EPS for the quarter ended March 31, 2023 to be negative. Its revenue for the same quarter is expected to decline 2% year-over-year to $78.88 million. It has failed to beat consensus EPS estimates in each of the past four quarters. Over the past year, the stock has fallen 90.5% to close the last trading session at $1.84.
KLR’s bleak outlook is reflected in its POWR ratings. It has an overall rating of D, which translates to a sell in our proprietary rating system.
It has an F rating for sentiment and a D for quality. It is ranked No. 44 out of 46 stocks in the Telecom – Abroad industry. Click here to see KLR’s other ratings for growth, value, momentum and stability.
What to do next?
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OMI shares were unchanged in premarket trading on Monday. Year-to-date, the IMO is down -20.43%, compared to a 9.09% rise in the benchmark S&P 500 over the same period.
About the Author: Dipanjan Banchur
Ever since he was in elementary school, Dipanjan had been interested in the stock market. This enabled him to obtain a master’s degree in finance and accounting. Currently, as an investment analyst and financial journalist, Dipanjan is particularly interested in reading and analyzing emerging trends in financial markets.
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