Renowned investor Cathie Wood is the founder, CEO, and CIO of Ark Invest, an investment management firm. Its flagship fund, ARK Innovation ETF (ARKK), seeks to generate long-term capital appreciation by investing in businesses across the globe that seek to benefit from disruptive innovation.
Following the pandemic highs, the growth companies favored by Wood have fared poorly this year as the Federal Reserve unleashed its most aggressive monetary policy tightening in decades to contain inflation. The central bank’s benchmark overnight lending rate currently sits in the target range of 4.25% and 4.5%, the highest level in 15 years.
The ARK Innovation Fund has lost around 69.4% over the past year, more than triple the decline of the S&P 500 index. Moreover, the fund’s lack of diversification is also believed to have driven down its performance.
As a result, the fund was named the worst-performing among all 537 U.S. mid-cap growth funds and was placed near the bottom of all U.S. equity funds tracked by Morningstar, according to the firm’s December 16 ranking.
So, it could be best to avoid fundamentally weak Cathie Wood stocks Block, Inc. (SQ) and Roku, Inc. (ROKU).
Block, Inc. (SQ)
SQ creates tools enabling sellers to accept card payments and offers reporting, analytics, and next-day settlement. It provides various hardware products, software products, and a developer platform. The company serves the United States, Canada, Japan, Australia, France, Ireland, Spain, and the United Kingdom.
SQ’s trailing-12-month gross profit margin of 32.72% is 33.95% lower than the industry average of 49.54%. Also, its trailing-12-month ROCE, ROTC, and ROTA of negative 5.18%, 1.51%, and 1.73% compare to the industry averages of 5.00%, 3.24%, and 1.52%, respectively.
For the fiscal 2022 third quarter ended September 30, 2022, SQ’s total operating expenses increased 45.6% year-over-year to $1.62 billion. Its operating loss came in at $48.79 million, compared to an operating income of $22.99 million in the prior-year period.
In addition, the company’s net loss attributable to common stockholders came in at $14.71 million, compared to a net income attributable to common stockholders of $84,000 in the year-ago period.
Analysts expect SQ’s EPS to decline 34.8% year-over-year to $1.12 for the current fiscal year ending December 2022. Its revenue is likely to fall marginally year-over-year to $17.49 billion in the current year.
The stock has slumped 64.5% over the past year to close the last trading session at $59.86. SQ has a 24-month beta of 2.57.
SQ’s POWR Ratings reflect bleak prospects. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a D grade for Momentum, Stability, and Quality. Within the F-rated Financial Services (Enterprise) industry, it is ranked #84 out of 104 stocks.
Click here to access additional POWR Ratings of SQ for Growth, Value, and Sentiment.
Roku, Inc. (ROKU)
ROKU operates a TV streaming platform through two segments: Platform and Player. Its platform enables users to discover and access various streaming content and content publishers to build and monetize large audiences.
ROKU’s trailing-12-month gross profit margin of 46.61% is 7.37% lower than the industry average of 50.32%. Its trailing-12-month ROCE, ROTC, and ROTA of negative 8.68%, 4.78%, and 5.40% compare to their respective industry averages of 6.14%, 4.11%, and 2.32%.
ROKU’s gross profit declined 2% year-over-year to $356.79 million during the fiscal 2022 third quarter ended September 30, 2022. The company’s loss from operations amounted to $146.99 million, compared to income from operations of $68.85 million in the prior year’s quarter.
Also, its net loss came in at $122.18 million and $0.88 per share, compared to $68.94 million and $0.48 in the prior-year quarter, respectively.
Street expects ROKU’s loss per share to rise 449.1% year-over-year to $1.04 in the fiscal first quarter ending March 2023. Similarly, its revenue is estimated to decline 3.6% year-over-year to $707.54 million in the current year.
The stock has plunged 82.8% over the past year to close the last trading session at $39.23. It has a 24-month beta of 2.02.
ROKU’s POWR Ratings are consistent with this bleak outlook. It has an overall D rating, equating to a Sell in our proprietary rating system.
It has an F grade for Growth and a D for Momentum, Stability, and Sentiment. Within the D-rated Consumer Goods industry, it is ranked #55 out of 58 stocks.
Click here to see the other ratings of ROKU for Value and Quality.
SQ shares were trading at $59.10 per share on Wednesday afternoon, down $0.76 (-1.27%). Year-to-date, SQ has declined -63.41%, versus a -18.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.2 Cathie Wood Stocks to Think Twice About Before Buying StockNews.com