The stock market’s strong rally in 2023 caused many investors to forget about the tumultuous times in 2022. While the stock market is experiencing strong momentum at the start of the year, thanks to artificial intelligence and other factors, not everything has gone up in bullish markets.
A few stocks missed out on the 2023 rally and are likely to miss out this year as well. These stocks are at risk of losing value in the upcoming months. Investors may want to be cautious with these three particular stocks to sell.
Target (TGT)
Target (NYSE:TGT) has exhibited flat or declining revenue growth in recent quarters. Revenue dropped by 4.2% year-over-year in the third quarter of 2023 while adjusted earnings per share (EPS) increased 36% year-over-year.
The company’s guidance called for more of the same and projected a year-over-year revenue decline in the mid-single digits. Target also expects an adjusted EPS of $1.90 to $2.60 in the fourth quarter.
Target must report on the higher end of the range to generate meaningful growth since it reported an adjusted EPS of $1.89 in Q4 2022. That was a big drop from the company’s $3.19 adjusted EPS in Q4 2021. Revenue growth also came in at a crawl in Q4 2022 and was up by 1.3% year-over-year in that period.
Target’s launch of a low-cost brand should also raise eyebrows. While this opportunity can help the company generate revenue, it’s a symptom of a problem. People are spending less money on discretionary items which has been hurting Target’s growth rates. Retailers like Walmart (NYSE:WMT) are still growing which indicates Target is losing market share and can end up in a correction.
Etsy (ETSY)
At one point, Etsy (NASDAQ:ETSY) was a rapidly growing business with healthy profit margins. This growth happened before the pandemic, but lockdowns accelerated the company’s stardom. Etsy no longer fits the growth narrative and has seen its stock plunge by 40% over the past year.
Etsy only grew consolidated gross merchandise sales (GMS) by 1.2% year-over-year in the third quarter of 2023. This metric represents the total amount of business generated on the platform. It’s different from revenue since Etsy has to pay its sellers.
Revenue grew 7% year-over-year which indicates Etsy is only able to grow in the mid-single digits by raising its prices on buyers and sellers. That’s not a sustainable growth strategy and can result in people leaving the platform.
Etsy projected a year-over-year decline in GMS. That is unacceptable for Etsy’s growth narrative and warrants a sharp correction. Etsy stock used to be a shining star but some stars lose their shine as they age. Shares trade at an excessive 6.74 price-to-earnings growth ratio.
Snap (SNAP)
Snap (NYSE:SNAP) is a well-known social media app that has 414 million daily active users. That’s a lot of people, but a higher user base doesn’t always indicate a good company. For instance, Vine was shut down despite having over 200 million active users.
Disappointing financial results amid strong recoveries from other social media and advertising stocks indicate Snap can fall into a deeper correction. The company only reported 5% year-over-year revenue growth in Q4 2023 along with a $248 million net loss. The company generated a net loss of $1.3 billion for all of 2023.
Yahoo! Finance currently projects a forward price-to-earnings ratio above 1,000. That can happen when a company moves from losses to profits. Yet it is still an optimistic outcome since the company is unlikely to make a profit in 2024. The stock appropriately dropped by more than 30% upon reporting earnings but has recovered a small amount of those losses since.
Investors should steer clear of this stock. The dip does not present a buying opportunity. Snap hasn’t demonstrated any meaningful progress toward becoming a profitable company and is losing market share to other social networks and advertisers. This stock will lose value for investors and doesn’t have any catalysts on its side.
On the date of publication, Marc Guberti did not have (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.
