In a market like this, you should identify stocks most likely to underperform as a way of protecting your portfolio. Some stocks have had poor performances in the past years but then they have some very significant challenges that can take their value into a slump.
Deep, top-line declines and restructuring deceleration have weighed down these same companies, and this usually consumes a lot of sales headwinds from various sectors. Realizing them early enough as an investor helps you make informed decisions and become cautious regarding losses.
Stocks to sell are those that have performed poorly with declining revenue, deteriorating profit margins or adverse market conditions. We identify must-sell stocks by considering factors like their financial health, market trends, and the effects of external factors upon them.
Here are three companies currently finding the going very rough and seem to be on the way to a downturn. Their recent financial and market challenges suggest they may not recover soon, qualifying them as stocks to sell.
Snap (SNAP)
Although Snap (NYSE:SNAP) derived a 21% YoY boost in sales in Q1 2024, the company has projected a 15% to 18% growth rate in Q2 2024. Compared to the first quarter, this estimate indicates a three- to six-point slowdown.
Moreover, the Middle East conflict was one of the major external variables influencing the total advertising income growth rate in non-North American areas, including Europe and the rest of the world (ROW). Thus, the unstable climate created by these geopolitical considerations may make it difficult for Snap to maintain steady revenue growth in all markets.
Additionally, Snap’s revenue is primarily derived from advertising. Despite surging 194% year-over-year to $87 million in the period, other revenue streams such as Snapchat+ subscriptions still comprise only a small portion of the consolidated top line. Because of its dependence on advertising, Snap is highly sensitive to ups and downs in advertiser spending, economic downturns and ad industry swings.
Finally, losses narrowed slightly from last year. Snap recorded a $305 million net loss versus losses of $329 million a year ago. Hence, Snap is still losing a lot of money even with the decrease, raising questions about its long-term viability.
Nu Skin (NUS)
For Q1 2024, Nu Skin (NYSE:NUS) reported a significant decrease in revenue, down 13.3% from last year. The decrease was exacerbated by negative foreign exchange (FX) impacts of $18.2 million, or 3.8%. The company’s susceptibility to currency rate changes is a clear concern.
Additionally, the business posted a loss of 1 cent for the quarter or an adjusted profit of 9 cents when excluding restructuring expenses. This is a significant decrease from profits of 23 cents and 37 cents, respectively, last year. Hence, the severity of this profit decline underscores the serious underlying financial difficulties Nu Skin is facing.
Further, Nu Skin’s clientele dropped from 1,080,915 to 875,261, a 19% decrease. In addition, there were 154,171 paid affiliates as opposed to 220,216 a year ago, a 30% decline. The significant drop in affiliates and consumers points to systemic problems with affiliate recruiting and retention. These are essential to the business’s direct selling strategy.
Lastly, there were 38,609 sales leaders, down 12% from 43,870. This drop is very problematic, given the importance of sales leaders in generating revenue and attracting new affiliates.
Avnet (AVT)
Avnet (NASDAQ:AVT) reported a significant revenue decline for Q3 fiscal 2024, down 12.3% YoY. This decline is a crucial symptom of the business’ difficulties in maintaining its market position and rate of expansion.
Additionally, Avnet’s revenues are declining globally, not just in a specific region. Sales in the Americas fell by 18% from last year, Europe, Middle East and Africa were down 15% and Asia by 7% in constant currency. This global decline in revenues underscores Avnet’s challenge in continuing to grow over its entire global footprint.
Moreover, the operating income margin for the third quarter of the year was reported to be 3.4%, down 1.4 percentage points from Q3 2023’s 4.8%. After rising to 4.8% YoY, the adjusted operating income margin decreased to 3.6%. This margin drop reflects the difficult market circumstances, further straining the business’s profitability.
Finally, despite reporting an operating margin of 4.1%, the electronic components (EC) industry faces significant challenges in maintaining profitability due to diminishing revenues, making it a prime candidate for the stocks to sell list.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.