The resurgence of the COVID-19 cases due to the rapid spread of the highly contagious COVID-19 Delta variant has been fueling market volatility. Also contributing to investor nervousness is that the Federal Reserve could raise interest rates as soon as early 2023, but the timing regarding its tapering activities is still uncertain.
The prolonged period of loose monetary policy, in part, has led to stretched valuations for several fundamentally weak stocks. The stock market got a further boost from solid second-quarter earnings reports. However, along with the possible negative impact on the economic recovery of rising COVID-19 cases, concerns over high inflation have been fostering market volatility. The International Monetary Fund (IMF) warned that inflation could be persistent. As a result, several investors predict a market correction in the near term.
Against this backdrop, we think fundamentally weak stocks Royal Caribbean Group (RCL) and Bill.com Holdings, Inc. (BILL) look significantly overvalued at their current price levels and are due for a pullback. So, it’s best to avoid these two stocks now.
Royal Caribbean Group (RCL)
RCL is a Miami-based cruise company that operates 61 ships with an aggregate capacity of approximately 137,930 berths under the Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea Cruises brands. It offers a range of itineraries for destinations that include Alaska, Asia, the Caribbean, Europe, and New Zealand.
On March 19, 2021, RCL completed the sale of its Azamara brand to Sycamore Partners. The deal included Azamara’s three-ship fleet and associated intellectual property.
RCL’s comprehensive loss was $1.30 billion for the second quarter, ended June 30, 2021, compared to $1.49 billion in the year-ago period. Its adjusted net loss for the quarter remained flat at $1.30 billion compared to the prior quarter. Also, its loss per share came in at $5.06 compared to $6.13 in the previous year.
In terms of forward non-GAAP EV/S ratio, RCL’s 20.26x is 1,275.7% higher than the 1.47x industry average. In terms of forward P/S, the stock’s 10.82x is 747.4% higher than the 1.28x industry average.
For the quarter ending September 30, 2021, analysts expect RCL’s revenue to decrease 2,267.4% year-over-year to $730.15 million. Its EPS is expected to remain negative in its fiscal year 2021. The stock has lost nearly 4.9% over the past month to close Friday’s trading session at $78.92.
It’s no surprise that RCL has an overall F rating, which equates to Strong Sell in our POWR Ratings system. In addition, the stock has an F grade for Value and Stability, and a D grade for Growth, Sentiment, and Quality.
Click here to see RCL’s rating for Momentum as well. In addition, RCL is ranked #2 of 4 stocks in the F-rated Travel – Cruises industry.
Bill.com Holdings, Inc. (BILL)
BILL provides cloud-based software that digitizes and automates back-office financial operations for small- and midsize businesses worldwide. Its offerings include artificial intelligence (AI)-enabled financial software platforms and software-as-a-service (Saas), and cloud-based payments products. BILL is based in Palo Alto, Calif.
The company agreed on May 7, 2021, to acquire Divvy in a stock and cash transaction valued at roughly $2.5 billion. However, this acquisition could take a toll on BILL’s already weak financials.
BILL’s loss from operations was $15.30 million for the fiscal third quarter, ended March 31, 2021, versus a $9.70 million operating loss in the prior year. Its net loss for the quarter came in at $26.70 million compared to a $8.30 million net loss in the year-ago period. Also, its loss per share increased 190.9% year-over-year to $0.32.
In terms of forward non-GAAP EV/S ratio, BILL’s 81.49x is 1,902.9% higher than the 4.07x industry average. In terms of forward P/S, the stock’s 84.95x is 2,006.9% higher than the 4.03x industry average.
Analysts expect BILL’s revenue to increase 39.6% year-over-year to $309.96 million in its fiscal year 2022. However, its EPS is expected to remain negative in fiscal 2021 and 2022. The stock has lost 2.3% since hitting its 52-week high of $211.85 on July 29, to close Friday’s trading session at $202.92.
BILL’s poor prospects are apparent in its POWR Ratings. The company has an overall F rating, which translates to Strong Sell in our proprietary rating system. In addition, it has an F grade for Value, and a D grade for Stability and Quality.
Click here to see the additional POWR ratings for BILL (Momentum, Sentiment, and Growth). It is ranked #136 of 143 stocks in the D-rated Software – Application industry.
Click here to check out our Software Industry Report for 2021
RCL shares were trading at $77.07 per share on Monday afternoon, down $1.85 (-2.34%). Year-to-date, RCL has gained 3.19%, versus a 19.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal’s fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More…
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