Inflation, supply chain disruption and a general economic slowdown are weighing heavily on stocks. Last week, fedex (NYSE: FDX) withdrew its earnings forecast for next year while issuing a profit warning. Now, fears of a widespread decline in earnings are adding to investors’ desire to sell, as the economy cools.
Shares Bed Bath and Beyond Inc (NASDAQ:BBBY), Dutch Bros Inc. (NYSE:BROS), and MP Materials Corp (NYSE: MP) have all done poorly in recent weeks.
Some even see BBBY as a key retail trigger that followed, as its dismal results set the stage for the sector. In any case, do any of these stocks seem investable today?
Bed Bath & Beyond Inc. (NASDAQ: BBBY)
Last month, Bed bath and beyond (NASDAQ: BBBY) was briefly welcomed into the ranks of Wall Street’s meme stock.
You don’t know what a meme store is? Read our What is a Stock Meme? Article.
This was quickly followed by the shock exit of activist investor Ryan Cohen who unexpectedly dumped his BBBY shares. Additionally, the company hired a bankruptcy firm to help it deal with mounting debt, setting off alarm bells.
Buy, hold or sell BBBY shares?
It’s fair to say that BBBY stock has endured a volatile month of trading.
Since then, Bed Bath & Beyond has announced plans to close approximately 150 stores. It is laying off employees and securing $500 million in new funding. This additional access to cash will bolster its liquidity, bolster its struggling balance sheet, and support its immediate priorities to drive traffic and sales, while rebalancing its inventory.
FactSet analysts have an underweight rating on BBBY stocks, with several recently recommending hold or sell. Their consensus target price is $3.91. Today, BBBY is trading at around $7.27.
Retail is a cutthroat industry in which to operate, and inflation is destroying already tight margins. Unfortunately, Bed Bath & Beyond doesn’t have a unique selling point. Most of its inventory is ordinary and can be purchased elsewhere. There doesn’t seem to be a good reason to buy BBBY shares at the moment.
What does Bed Bath & Beyond do?
Bed Bath & Beyond Inc. operates a national chain of retail stores. The Company, through its retail stores, sells a wide assortment of merchandise, primarily household merchandise and home furnishings, as well as food, gift items, health care items and beauty, and baby and toddler merchandise.
MP Materials Corp (NYSE:MP)
PM materials (NYSE: MP) owns and operates the open-pit Mountain Pass rare earth mine in California. Year-to-date, MP Materials’ stock price is down -33.16%, while the S&P 500 is down -19.61% over the same period.
According to FactSet, 59.8% of MP shares are held by institutions and the net market value of shares sold is $407.2 million.
Buy, hold or sell MP shares?
It’s not all bad news for MP stocks. The macro case remains the same. Rare earths are used in wind turbines, electric vehicles, medical devices and defense weapons. They are therefore necessary for the transition to electrification.
With China currently cornering the market, the US government wants to see rare earth production and processing return to US shores for national security reasons.
Additionally, the number of shares outstanding for MP shares decreased slightly from 177.8 million in December 2021 to 177.5 million in June 2022, which is good news for shareholders.
In the second quarter, MP Materials recorded significant year-on-year growth in net profit.
Meanwhile, the market capitalization of PMs has fallen from $8 billion in December to $5.6 billion today. This could make the title more affordable, but the financial metrics remain high. MP has a price-to-earnings (P/E) ratio of 25. And its price-to-book (P/BV) ratio is 4.8, which is above the industry benchmark of 3.1.
In addition, the price of rare earths has fallen, making it more difficult to continue growth. It is a cyclical security and therefore subject to a fluctuating price.
Existing shareholders with a strong belief in the green energy transition are unlikely to be persuaded to sell, but whether now is a good time to buy depends on your risk appetite. With commodity prices under pressure and economic uncertainty, bearish sentiment is weighing heavily on mining stocks.
Over the past year, MP stock has traded between $27.48 and $60.19. Today it is trading at around $31.85.
FactSet analysts have a consensus buy rating on MP shares with a target price of $50.14.
The MP share does not offer a dividend to shareholders.
A stock with a beta above 1.0 should be more volatile than the S&P 500. MP stock has a 3-year beta of 2.8, accurately reflecting its volatile nature.
What does MP Materials do?
MP Materials Corp. produces and markets specialized rare earth materials. The company is building a fully integrated supply chain for high strength permanent magnets for the electrification and sustainability industries.
MP Materials went public via SPAC’s 2020 IPO through a merger with Fortress Value Acquisition Corp. This was one of Chamath Palihapitiya’s high profile SPAC consolidations in which he sponsored the PIPE.
Dutch Bros Inc (NYSE: BROS)
Coffee remains a vital staple in our daily lives, and with the pandemic behind us, demand continues to soar. But the supply chain chaos has impacted coffee stocks and Brazil, the world’s largest coffee producer, is running out. A coffee shortage threatens to drive up prices, which is not good news for the retailer or the consumer.
As businesses welcome a rebound from the return to work, Dutch Bros revenue has improved. But the industry is competitive, inflation is eating away at margins, and retaining staff requires paying higher salaries.
BROS stock price is down 40% since we wrote about Dutch Bros Stock in March. At the time, we noted that the Dutch Bros stock price could be affected by rising input costs and squeezed margins.
Since then, the company has made strategic decisions and may be better placed in the future.
Buy, hold or sell BROS shares?
The company needs to execute on its ambitious growth strategy to make a successful comeback and see BROS stock price rise.
Dutch Bros’ goal is to open 4,000 stores in the United States within 10 to 15 years. The US coffee market is worth an incredible $35 billion, so although it’s a competitive industry, there’s plenty of demand for hot brew.
Over the past year, BROS stock has traded between $20.05 and $81.40. Today it is trading at around $35.51. And since the beginning of the year, the Dutch Bros share price is down -32.26%.
The number of shares outstanding increased in the first six months of the year, while the company’s market value fell.
According to FactSet, 38.7% of MP shares are held by institutions.
BROS stock has a P/BV of 17.5, which is well above the industry benchmark of 2.76. BROS stock does not offer a dividend.
Whether you buy, hold or sell BROS stock depends on your appetite for risk and your belief in its long-term potential. It may be that Dutch Bros’ drive-thru model potentially gives it more room for growth in our rapidly changing world than Starbucks’ social cafe design. But input costs to the business could squeeze margins for a while, leaving the stock price vulnerable to continued volatility.
FactSet analysts have a consensus overweight rating on BROS stock with a target price of $50.22.
What does Dutch Bros do?
Dutch Bros Inc. operates and franchises drive-thru stores that focus on serving craft beverages. The company offers hot and cold espresso drinks. Dutch Bros serves customers all over the world.
Dutch Bros isn’t the only coffee stock we’ve covered. Starbucks (SBUX), BRC (BRCC), reborn cafe and lucky coffee have all been on our radar too.
If you’re interested in small cap stocks, why not read our IPO coverage?