07 Dec 4 Risky Stocks to Avoid on Declining Revenues and Downgrades
This week we bring to you four companies, namely Sunworks (NASDAQ: SUNW), Progenity Inc (NASDAQ: PROG), Upland Software Inc (NASDAQ: UPLD) and Purple Innovation Inc (NASDAQ: PRPL) that could turn out be to vulnerable investments, in view of the challenges being faced by these companies, such as loss of market share, dwindling revenues, tough competition or short seller interest.
Sunworks Inc (NASDAQ: SUNW)
Market Cap: $116.04M; Current Share Price: 3.99 USD
Data by YCharts
The Company provides comprehensive and high-performance solar power systems and solutions that cater to Residential, Agricultural, and Commercial Solar Integrator requirements. Sunworks offers customers a first-hand experience of how solar solutions work through its Sunworks Solar Design Center, where customers can avail custom solar solutions and choose from the latest in renewable products in the industry. The Center also provides financing options to make the choice to switch easier.
Image Source: Company
The Company is also an authorized dealer of SunPower, solar power storage battery solutions, that enables customers to store extra energy instead of feeding it back to the electricity grid. Sunworks also provides residential vehicle charging systems, through its partnership with Solar Edge, which allows customers to charge their electric vehicles at the convenience of their home and take advantage of favorable residential electricity rates.
Sunworks also provides Engineering, Procurement and Construction (EPC) solutions encompassing permitting, design, procurement, construction, operation and maintenance (O&M) and has delivered over 500 agricultural, commercial and industrial installations.
The Company acquired Solcius, a privately held residential solar company in April 2021, in an all-cash transaction worth $51.8 million, extending its national presence to 12 states. In June 2021, the Company provided pro forma results for Sunworks and Solcius, delivering combined financial results for fiscal 2020 and Q1,2021 through a Form 8-K/A filing with the Securities and Exchange Commission, which states that the combined company would have generated revenue of approximately $30.8 million, an operating loss of approximately $4.2 million and a net loss of approximately $4.1 million in the first quarter of 2021 (the period ended March 31, 2021).
As per its Q3,2021 financial results, the Company’s total revenue stood at $31.2 million compared to $7.3 million the previous year and includes $23.3 million in residential revenue from Solcius. The net loss for Q3,2021 was $6.5 million or $0.24 per basic and diluted share, compared to $2.9 million or $0.17 per basic and diluted share for the same period last year. The Company has also registered a decrease in project backlogs. The total backlog projects were $51 million as of September 30,2021, as against $64 million as of June 30, 2021. The decline has been attributed to project timing in commercial and industrial markets.
Sunworks competes in a highly competitive space, with competitors such as Sunpower that are miles ahead of the Company currently. The Company does not have a differentiating factor that can set it apart from the competitors and may not be able to capitalize on the opportunities emerging in the clean energy field.
Progenity Inc (NASDAQ: PROG)
Market Cap: $ 461.78M; Current Share Price: 2.82 USD
Data by YCharts
Progenity, formerly known was Ascendant MDX, Inc, was founded in 2010 as a biotechnology company providing molecular testing products for chromosome abnormalities like down syndrome, trisomy 18, trisomy 13, and sex chromosome disorders. Since its initial public offering in 2010, the share has fallen from a high of $13 to a low of under $1 per share. However, the Company has been a subject of a short squeeze, which saw the share rise to the $4 mark.
At the time of its IPO the Company was into developing and marketing advanced testing products like minimally invasive prenatal genetic tests that used genomics and other cutting-edge technology to improve patient lives. Progenity’s revenues for 2018 and 2019 were $128 million and $144 million respectively.
However, things took a turn for the worse in July 2020, when the Department of Justice settled charges of fraudulent billing and kickbacks against the Company for $49 million. The Company admitted to fraudulent practices such as using wrong billing codes, giving physicians meals and happy hours and “Draw Fees” to buy their products. The news proved to be a huge setback to all the gains it had made at the stock market and coupled with mounting losses and other headwinds, the Company ended winding up its testing business.
Image Source: Company
In June 2021, the Company announced that it will discontinue providing laboratory services, and stop offering its Preparent® Carrier Test, Innatal® Prenatal Screen, Riscover® Hereditary Cancer Test, and Resura® Prenatal Test as part of a strategic transformation. Progenity also cut down the total workforce by 56%. These measures are expected to reduce costs by $130 million in SG&A. On the bright side, Progenity has built a strong intellectual property rights portfolio with over 180 patents and more than 220 pending patent applications.
The Company is now focused on pursuing opportunities in preeclampsia, gastrointestinal health and oral biotherapeutics. However, as a clinical-stage company, it has years to go before any of the candidates will make it to the market and generate revenue. Most importantly, it will require capital to develop these candidates and with no revenue from the testing business it will have a hard time raising the required capital.
Upland Software Inc (NASDAQ: UPLD)
Market Cap: $ 616.94M; Current Share Price: 20.21 USD
Data by YCharts
Upland Software, a provider of cloud-based tools such as its UplandOne operating platform for digital transformation solutions, has missed expectations on revenue and sales growth, for the third time in a row. While the falling share price reflects the disappointment of the investor community, the stock has also been downgraded by Jefferies and Craig-Hallum. Brent Thill, analyst at Jeffries revised the price target from $50 to $30 and changed the rating to “hold” from “buy”. The downgrade was prompted by a decline in sales growth, deceleration in volume-based messaging activity and no uptick in new logo bookings and renewals.
The stock was also downgraded by Jeff Van Rhee, an analyst at Craig-Hallum, with a change in rating to “hold” from “buy” and a revision in price target to $32 from $64.
Upland provides over 20+ products such as Cimpl, a telecom expense and inventory management system; InterFAX, a cloud-based fax service; Altify, an account planning software and Adestra, enterprise marketing and email automation software among others. The Company has over 1700+ enterprise customers across numerous industries such as financial service, education, government, technology, telecom and media, healthcare, manufacturing and consumer retail to name a few. The Company has been pursuing strategic acquisitions and has added Panviva (Enterprise Knowledge management), BlueVenn (Customer data platform) and Second Street Contests and Interactive Content) to its portfolio in 2021.
The Company lowered its Q4 revenue guidance by $3.9 million owing to lower messaging volumes and less-than-expected new logo bookings and net dollar retention rate as per its Q3,2021 earnings call. The revenues for Q3 were $1.3 million below the guidance range and were primarily due to lower-than-expected variable text and email messaging volumes from the Company’s progressive advocacy organization customers. Though the clients are still with the Company, the reduced message volumes have made Upland revise its guidance for Q4,2021.
Upland’s renewed focus on landing multiyear customer renewals and expansions has resulted in a higher percentage of revenue to be contracted through 2022, thereby with a chance of improving its net dollar retention rates in 2022.
Purple Innovation Inc (NASDAQ: PRPL)
Market Cap: $ 673.30M; Current Share Price: 10.06 USD
Data by YCharts
Purple Innovation, touted to be the world’s first comfort tech Company, designs and manufactures comfort products such as mattresses, pillows, sheets and other products. The Company posted disappointing third-quarter results and a revised outlook, which led to ratings and price target revisions from multiple analysts.
The sales of the Company fell by 8.7% YoY in Q3,2021 as compared to the same period in 2020. The Company reported a quarterly loss of $0.07 per share compared to earnings of $0.27 per share a year ago. Revenues stood at $170.78 million for the quarter ended September 2021 as against a revenue of $187.11 million a year ago, a decline of 8.7%. The Company also reported a decline of 15.9% in its Direct-to-Consumer (DTC) revenue compared to 2020, which is concerning as direct sales form the core of its business. On the bright side, wholesale revenue grew by 9.6%.
Joe Megibow, Chief Executive Officer attributed the performance to impact from manufacturing backlog, lack of inventory, delays in planned wholesale expansion and a cutback in marketing spend due to supply shortages which impacted its digital business. The Company has now revised its 2021 outlook and expects net revenue to be between $720 and $740 million, with DTC revenue projected to reach approximately $475 million for 2021. The EBITDA for full year 2021 is now expected to be between $15 million and $25 million. Most importantly it intends to meet its target of 400 to 500 incremental doors and 28 showroom locations by the end of 2021.
The revision of 2021 outlook and the disappointing Q3 results have led to the stock being downgraded by multiple analysts. While Curtis Nagle at BofA Securities changed the rating to a sell due to “weak” online trends, the new “big” competitive threat, Keith Hughes from Truist changed the rating to “Hold” from “Buy”. Bobby Griffin from Raymond James has also lowered the rating of the stock from outperform to market perform.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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References
https://investors.progenity.com/static-files/ac5f18ab-8c70-406a-b539-e4c54bfffac8
https://finance.yahoo.com/news/sunworks-solcius-integration-120000197.html
https://finance.yahoo.com/news/sunworks-announces-third-quarter-financial-210600238.html
https://finance.yahoo.com/news/sunworks-announces-third-quarter-financial-210600238.html
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