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 also issuing a profit warning. Now fears of a broad-based earnings decline compound investors' desire to sell, as the economy cools.
Stocks Bed Bath & Beyond Inc (NASDAQ: BBBY), Dutch Bros Inc (NYSE: BROS), and MP Materials Corp (NYSE: MP) have all fared poorly in recent weeks.
Some even see BBBY as a key trigger in the subsequent retail sell-off, as its dismal earnings set the scene for the sector. In any case, do any of these stocks look investable today?
Bed Bath & Beyond Inc (NASDAQ: BBBY)
Last month, Bed Bath & Beyond (NASDAQ: BBBY) was briefly welcomed into the ranks of Wall Street meme stock.
Unsure what a meme stock is? Read our What is a Meme Stock? Article.
This was rapidly trailed by the shock exit of activist investor Ryan Cohen who dumped his BBBY shares unexpectedly. Additionally, the company hired a bankruptcy firm to help it address a mounting debt pile, sending alarm bells ringing.
Buy, Hold, or Sell BBBY Stock?
It's fair to say BBBY stock has endured a volatile month of trading.
Since then, Bed Bath & Beyond announced plans to close around 150 stores. It's laying off employees and secured $500m in new financing. This additional access to cash will bolster its liquidity, strengthen its ailing balance sheet and support its immediate priorities to drive traffic and sales, while also rebalancing its inventory.
FactSet analysts have an Underweight rating on BBBY stock, with several recently recommending Hold or Sell. Their consensus target share price is $3.91. Today BBBY trades at around $7.27.
Retail is a cut-throat industry to be operating in, and inflation is destroying already tight margins. Unfortunately, Bed Bath & Beyond doesn't have a unique selling point. Most of its inventory is run-of-the-mill and can be bought elsewhere. There does not appear to be a strong reason to buy BBBY stock at this time.
What Does Bed Bath & Beyond Do?
Bed Bath & Beyond Inc. operates a nationwide chain of retail stores. The company, through its retail stores, sells a wide assortment of merchandise principally including domestic merchandise and home furnishings, as well as food, giftware, health and beauty care items, and infant and toddler merchandise.
MP Materials Corp (NYSE: MP)
MP Materials (NYSE: MP) owns and operates the open-pit rare earth Mountain Pass mine in California. Year-to-date, the MP Materials stock price is down by -33.16%, while the S&P 500 is down by -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 $407.2m.
Buy, Hold, or Sell MP Stock?
It's not all bad news for MP stock. The macro case remains the same. Rare earths are used in wind turbines, electric vehicles, medical devices, and defense weapons. Therefore, they are needed for the electrification transition.
As China currently corners the market, the US government wants to see rare earth production and processing return to US shores for national security reasons.
Furthermore, the number of shares outstanding for MP stock has slightly declined from 177.8m in December 2021 to 177.5m in June 2022, which is good news for shareholders.
In Q2, MP Materials reported significant Y/Y growth in net income.
Meanwhile, the MP market cap has declined from $8bn in December to $5.6bn today. This could make the stock look more affordable, but the financial metrics remain high. MP has a price-to-earnings ratio (P/E) of 25. And its price-to-book-value (P/BV) is 4.8, which is above the industry benchmark of 3.1.
Additionally, the price of rare earths has declined, making continued growth more difficult to achieve. This is a cyclical stock and, therefore, subject to a fluctuating share price.
Existing shareholders with strong conviction in the green energy transition are unlikely to be persuaded to sell but whether this is a good time to buy depends on your appetite for risk. With commodity prices under pressure and economic uncertainty, bearish sentiment weighs heavily on mining stocks.
Over the past year, MP stock has traded between $27.48 and $60.19. Today it trades at around $31.85.
FactSet analysts have a consensus Buy rating on MP stock with a target share price of $50.14.
MP stock does not offer a shareholder dividend.
A stock with a beta higher than 1.0 is expected to 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 rare earth specialty 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 IPO in 2020 via a merger with Fortress Value Acquisition Corp. It 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, supply chain chaos has impacted coffee stockpiles, and Brazil, the world's biggest coffee producer, is running low. A coffee shortage threatens to send prices soaring, which is not good news for the retailer or the consumer.
As businesses welcome a back-to-work rebound, Dutch Bros revenues have been improving. But the sector is competitive, inflation is eating into margins and retaining staff requires paying higher wages.
The BROS share price is down 40% since we wrote about Dutch Bros Stock in March. At the time, we noted Dutch Bros stock price could take a hit as rising input costs soar and margins are squeezed.
Since then, the company has made some strategic decisions and may be better placed in the future.
Buy, Hold, or Sell BROS Stock?
The company must deliver on its ambitious growth strategy to make a successful comeback and see the BROS share price rise.
Dutch Bros' target is to open 4,000 US stores within the next 10 to 15 years. The US coffee shop market is worth an incredible $35bn, so although it's a competitive sector, there's plenty of demand for the hot brew.
Over the past year, BROS stock has traded between $20.05 and $81.40. Today it trades at around $35.51. And year-to-date, the Dutch Bros stock price is down by -32.26%.
Shares outstanding rose during 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 belief in its long-term potential. It may be that Dutch Bros' drive-thru model potentially gives it more room for growth in our fast-moving world than Starbucks' social coffee shop design. But the input costs to the business could squeeze margins for some time, leaving the share price vulnerable to continued volatility.
FactSet analysts have a consensus Overweight rating on BROS stock with a target share price of $50.22.
What Does Dutch Bros Do?
Dutch Bros Inc. operates and franchises drive-thru shops that focus on serving hand-crafted beverages. The company offers hot and cold espresso-based beverages. Dutch Bros serves customers worldwide.
Dutch Bros is not the only coffee stock we've covered. Starbucks (SBUX), BRC (BRCC), Reborn Coffee and Luckin Coffee have all been on our radar too.
If you are interested in small-cap stocks, why not read our IPO coverage?