Three Stocks to Avoid for the Week of April 9th

Seeking out great stocks to buy is essential, but many would say it’s even more important to know which stocks to steer clear of.  A losing stock can eat away at your precious long-term returns.  So, figuring out which stocks to trim or get rid of is essential for proper portfolio maintenance.  

Even the best gardens need pruning and our team has spotted a few stocks that seem like prime candidates for selling or avoiding.  Continue reading to find out which three stocks our team is staying away from this week. 

 Food delivery leader and pandemic darling DoorDash (DASH) was one of the big winners in the shift to stay-at-home culture.  Between 2019 and 2021 DASH revenue increased by 451% from $885 million to $4.88 billion.  But now that the economic reopening is complete, DoorDash’s revenue increases are grinding to a halt.  Between the third and fourth quarters of 2021, it experienced growth of just 1.9%.

DASH’s revenue came in at $1.30 billion for the fourth quarter 2021, up 34% year-over-year.  However, its total costs and expenses were up 14% year-over-year at $1.45 billion.  Total current liabilities were $1.76 billion for 2021, compared to $1.4 billion for 2020.

The company is expecting $48 to $50 billion in gross order volume in 2022, implying a modest 14% increase from $41.9 billion last year.  However, that’s not enough to justify DASH’s lofty valuation.  Currently the stock trades at a price-to-sales multiple of 7.4, expensive when compared to top competitors like Uber Technologies (UBER) which trades at a price-to-sales multiple of 3.6 – half that of DASH.  

DASH’s EPS is estimated to remain negative in 2022 and 2023. Its EPS is estimated to fall 20.6% for the first quarter.  It’s Important to note that the company missed EPS estimates in each of the trailing four quarters. The stock has declined 27% since the beginning of the year to close Friday’s session at $106.42.

Healthcare facility maintenance and food service provider Healthcare Services (HCSG) made our list of stocks to avoid after reporting horrific Q4 results.   The company reported Q4 earnings of $0.03 per diluted share, down from $0.37 in Q4 2020 and  57% lower than consensus expectations.  What’s more, EBITDA missed the mark by 54%.  

HCSG spending has been on the rise for the past few quarters and spiked more than 7% quarter over quarter in Q4.  Management doesn’t expect cost of service to come back to their historical target of 86% until the end of the year, and that seems like an optimistic estimate.

“Our fourth quarter results reflect continued margin pressures resulting from workforce availability, inflation and supply chain disruption. We remain actively engaged with our customers to modify our service agreements to adjust for the extraordinary inflation experienced during the second half of 2021, as well account for future inflation on a real-time basis,” said CEO Ted Wahl.  

With occupancy rates at nursing facilities across the U.S. making a much slower recovery from the pandemic than expected, the industry has shed more than 220,000 jobs in the past year.  Healthcare Services struggled to find footing in 2021 and the prospects for 2022 are not looking great.

HCSG has underperformed significantly when compared to the broader market.  Over the past 12 months the S&P 500 is 9% higher while HCSG is lower by 38%.  The pros on Wall Street give the stock a Hold rating.  We’ll stay away until headwinds subside. 

New York based LivePerson, Inc. (LPSN) is best known as the developer of the Conversational Cloud, a software platform that allows consumers to message with brands.  The company tops our list this week after Q4 financial results that point to a substantial slowdown in organic revenue growth that is unlikely to meaningfully improve until fiscal 2023.

Management signaled a shift in the growth strategy ahead to focus more on generating earnings in 2022 rather than gaining enterprise customers.  The slower growth profile, powered by a steady return toward more normal in-person working trends, could translate into weaker earnings than Wall Street is hoping for.

To that end, the company predicted that sales in the first quarter of about $125 million, translating into a 16% boost.  Revenue for the full year will climb by less than 20% to about $560 million where most Wall Street pros were looking for that 2022 sales figure to be closer to $600 million.  

LivePerson was downgraded by no less than nine firms after the disappointing call.  Among the analysts to revise their ratings was Evercore ISI analyst Peter Levine who downgraded LPSN to In Line from Outperform and slashed the price target to $20, down from $75 following the company’s “sub-par results and a weak outlook.”