Although inflation has shown signs of easing, it is still far from the Federal Reserve’s long-term target. The Fed will likely hike the interest rate at its next policy meeting scheduled this week. The tighter lending standards and high interest rates are expected to tip the economy into a recession this year.
Given this backdrop, it could be wise to avoid fundamentally weak stocks Owens & Minor, Inc. (OMI), ASOS Plc (ASOMY), and Kaleyra, Inc. (KLR).
Let’s discuss why the stock market is expected to be under pressure this year.
March’s Consumer Price Index (CPI) data confirmed a downtrend for inflation, as prices rose 0.1% sequentially and 5% annually in March. However, the core consumer prices, which exclude food and energy items, rose 0.4% sequentially and 5.6% year-over-year. In addition, the U.S. economy added 236,000 jobs in March, indicating a strong job market.
Post the quarter-percentage-point interest rate increase 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 will deliver a 25-basis point rate hike this week, lifting the federal funds rate above 5% for the first time since mid-2007.
Minutes from the Fed’s March meeting show that the staff believes there could be a mild recession this year. The meeting summary said, “Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
Given these factors, it could be wise to avoid the above-mentioned stocks. Let’s delve deeper into their fundamentals.
Owens & Minor, Inc. (OMI)
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 in-home care and delivery across diabetes treatment, home respiratory therapy, and obstructive sleep apnea treatment.
OMI’s 18.35% trailing-12-month gross profit margin is 67% lower than the 55.66% industry average. Its 1.59% trailing-12-month Capex/Sales is 65.7% lower than the 4.63% industry average.
OMI’s adjusted operating income for the fourth quarter ended December 31, 2022, declined 20.9% year-over-year to $67.16 million. Its adjusted net income decreased 64.6% over the prior-year quarter to $21.71 million. Also, its adjusted EPS declined 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 declined 57.7% to close the last trading session at $15.54.
OMI’s weak prospects are reflected in its POWR Ratings. The stock has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #109 out of 141 stocks in the D-rated Medical – Devices & Equipment industry. It has an F grade for Sentiment and a D for Growth. Click here to see the other ratings of OMI for Value, Momentum, Stability, and Quality.
ASOS Plc (ASOMY)
Headquartered in London, the United Kingdom, ASOMY operates as an online fashion retailer. It offers womenswear and menswear products. The company sells its products under the 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 Weekend Collective brands.
ASOMY’s 0.78% trailing-12-month EBITDA margin is 93.1% lower than the 11.40% industry average. Its trailing-12-month EBIT margin is negative 0.27% compared to the 7.79% industry average. Furthermore, the stock’s 1.87% trailing-12-month Capex/Sales is 41.8% lower than the industry average of 3.21%.
For the year ended August 31, 2022, ASOMY’s gross profit declined 3.3% over the prior-year period to £1.72 billion ($2.16 billion). Its operating loss came in at £9.80 million ($12.31 million), compared to an operating profit of £190.10 million ($238.86 million) in the year-ago period.
Also, its loss for the year attributable to owners of the parent company came in at £30.80 million ($38.70 million), compared to 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 declined 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, equating to a Sell in our proprietary rating system.
Within the F-rated Internet industry, it is ranked #48 out of 65 stocks. It has a D grade for Growth, Sentiment, and Quality. To see the other ratings of ASOMY for Value, Momentum, and Stability, click here.
Kaleyra, Inc. (KLR)
Headquartered in Milan, Italy, KLR provides mobile communication services to financial institutions, e-commerce players, OTTs, software companies, logistic enablers, healthcare providers and retailers, and other organizations worldwide.
On April 3, 2023, KLR announced that it received a written notice from the New York Stock Exchange that the company no longer satisfies the continued listing standards set forth under Section 802.01B of the NYSE’s Listed Company Manual as the average capitalization of the company over a consecutive 30 trading-day period was less than $50 million. At the same time, its last reported stockholders’ 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 stockholders’ equity was $42.20 million as of December 31, 2022.
KLR’s 20.67% trailing-12-month gross profit margin is 59% lower than the 50.37% industry average. Its trailing-12-month EBIT margin is negative 11.13% compared to the 4.53% industry average. Furthermore, the stock’s 0.62% trailing-12-month Capex/Sales is 74.1% lower than the industry average of 2.39%.
KLR’s adjusted gross profit for the fourth quarter ended December 31, 2022, declined 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 came in at $4.42 million, compared to a non-GAAP net income of $3.91 million in the year-ago period.
In addition, its non-GAAP loss per share came in at $0.10, compared to a non-GAAP EPS of $0.08 in the year-ago period. Also, its adjusted EBITDA declined 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 failed to surpass consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined 90.5% to close the last trading session at $1.84.
KLR’s grim prospects are 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 grade for Sentiment and a D for Quality. It is ranked #44 out of 46 stocks in the Telecom – Foreign industry. Click here to see the other ratings of KLR for Growth, Value, Momentum, and Stability.
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OMI shares were unchanged in premarket trading Monday. Year-to-date, OMI has declined -20.43%, versus a 9.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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