After nearly two weeks of gains and several new record highs, concern over a resurgence of the virus, inflation and geopolitics finally took their toll on stocks this week. The three major indices all finished the week in the red. The Dow lost 1.1%, The S&P 500 dropped 0.6%, and the Nasdaq ticked 0.7% lower.
We have yet to see just how “transitory” current inflation will be or how high consumer and producer prices will go. Meanwhile, employment levels are still in recovery, which means there are fewer people who are capable of supporting such lofty valuations.
All of this creates a risk that as things return to normal, the market overall could be due for a correction. Hence this makes an excellent time for evaluating your portfolio. Even the best gardens need pruning, and our team has spotted some stocks that seem like prime candidates for selling or avoiding.
The pandemic has proven to be a blessing for e-commerce platforms across the board. One area that has done exceptionally well is the online used car market. While pandemic shutdowns eliminated many of its brick-and-mortar used car peers, Caravana (CVNA) thrived.
Since March 2020, CVNA share price has bolted upward 12x. So far in 2021, Carvana has shot up another 50%, approximately tripling the performance of the S&P 500.
Still, Carvana isn’t substantially profitable, and the company’s recent $750 million debt issuance highlights its cash-bleeding nature. Not to mention that the stock is downright expensive right now. CVNA’s current share price reflects a market cap of more than $60 billion. This puts Carvana at a higher value than Ford (F) on a market cap basis. If this year’s outperformance trend holds, it’s catching up to GM’s $74 billion market cap quickly.
When you consider the company’s enterprise value (that is, the company’s market capitalization plus all its net cash or debt position), Carvana is roughly 5x more expensive than its closest rival, Vroom (VRM), which is smaller and growing at a slower pace, but that valuation seems unrealistic.
While we do see a promising future for the industry, we’ll let Carvana cool off for a while before considering it in the buying range.
Before the pandemic, in 2020, Carnival Corp (CCL) had an enterprise value of $40 billion. Over the past year, the company lost $9 billion, which resulted in loads of dilution to CCL stock. Plus, the company has racked up substantial debt during that period.
CCL’s share price has sold off $32 to $22 in recent weeks, but it’s still nowhere near what we would consider buying range. The current $24.91 billion market cap for CCL puts the enterprise value at $48 billion. This basically means investors believe Carnival is worth roughly $8 billion more than it was before anyone had heard of Covid-19.
Last year’s massive losses didn’t take CCL down, but it doesn’t make sense to think that it’s worth more today than it was before the pandemic. Considering the looming delta variant threat, it may be a while before Carnival is firing on all cylinders again.
FuboTV reported that as of March 31st, its subscriber base topped 590,000 people, more than doubling its number of subscribers year over year. However, while the company is growing fast, profitability seems to be nowhere in sight. Nonetheless, investors have been jumping on the fuboTV bandwagon, driving shares up by more than 160% in the past 12 months.
In its most recent quarterly results, FUBO reported a record total revenue of $130 million, up nearly 200% year over year, partially fueled by ad revenue that grew 280% to $16.5 million. While that may seem impressive, total revenue was nowhere near enough to cover its $185 million in operating expenses. Particularly concerning is fuboTV’s $113 million subscriber-related expenses, which overshadows the $107 million it brought in from subscription-related revenue.
The company may continue attracting more subscribers thanks to its plans to launch a sportsbook before the end of the year. The problem is for investors that the financials might not strengthen as the business expands, pointing to an inevitable need to raise cash — diluting existing shareholders. Last week, the company revealed plans to sell $500 million worth of stock. Consequently, FUBO stock fell as much as 10% and is down another 10% this week.
Should you invest in Carnival Corp right now?
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