The stock market had a strong 2023, which carried into 2024. After some initial declines in April, tech giants reported strong earnings that raised the stock market. However, there are some concerns beyond the horizon. Higher inflation, elevated interest rates and significant consumer debt can lead to obstacles in the future and stocks to avoid.
Investors shouldn’t offload their portfolios during a crash. Holding onto stocks for several years, if not decades, can lead to meaningful long-term results. However, some positions are better than others. You may want to check your portfolio and make sure it doesn’t include any of these three stocks to avoid.
Snap (SNAP)
Snap (NYSE:SNAP) is a contrarian pick for this list since investors got excited about the company’s recent earnings report. The Q1 2024 print got investors excited and resulted in a 28% gain for the stock.
The most notable change was the company’s 21% year-over-year revenue growth. That’s the number you want to see from a growth stock. Daily active users also increased by 10% year-over-year. However, there are some issues.
The company’s net loss came to $305 million. That’s an improvement from a Q1 2023 net loss of $329 million, but a 7% improvement is not enough. Snap is still deep in debt, and an economic slowdown will bring the company’s revenue growth to an immediate halt.
Q2 guidance implies 15% to 18% year-over-year revenue growth. Snapchat+ subscription growth is driving some of the gains, and revenue has grown by 194% year-over-year. However, the company is still well removed from GAAP profitability. I’d be somewhat interested if the company didn’t have a $24 billion market cap or made more progress with trimming its losses.
Etsy (ETSY)
Etsy’s (NASDAQ:ETSY) growth days look like they are over. Q4 2023 consolidated gross merchandise sales dropped by 0.7% year-over-year in a time when other e-commerce corporations reported good revenue growth. While Etsy did achieve 4.3% year-over-year revenue growth, that growth came from charging higher fees. There’s a limit to how much Etsy can charge before users look for other platforms.
If consolidated gross merchandise sales remain flat, the company will continue to struggle. Etsy already warned about a bad Q1 2024, with GMS expected to decline in the low-single-digit range on a year-over-year basis. Leadership expects a turnaround to develop in Q2 2024. That can be due to Etsy facing more generous comps.
After soaring during the pandemic amid impressive financial growth, Etsy has collapsed. Shares are down by 33% over the past year and have dropped by 17% year-to-date. It’s hard to feel excited about the stock, and an economic downturn that weakens consumer spending can spell more trouble for the e-commerce firm.
Cava (CAVA)
Putting Cava (NYSE:CAVA) on this list is tough. The Mediterranean trend is strong, Cava is expanding, and it has the potential to be a great pick for investors with 10-year time horizons.
However, it’s hard to ignore the 330 P/E ratio for a restaurant chain expected to slow down in fiscal 2024. Cava opened 72 restaurants in Fiscal 2023 to bring its total up to 309 restaurants. That’s a 30.4% year-over-year increase in the number of total Cava restaurants. Revenue growth also came in strong, 52.5% higher than last year’s period. Net income also flipped positive to $2.0 million compared to a net loss of $18.8 million in the same quarter last year.
However, the company only anticipates opening 48-52 new restaurants in fiscal 2024. That’s only a 16.2% year-over-year improvement compared to the company’s 309 restaurants.
The company also expects same-restaurant sales growth to hover only from 3.0% to 5.0% year-over-year in fiscal 2024. Meanwhile, the company posted 17.9% year-over-year same restaurant sales growth in fiscal 2023. Decelerating sales can pressure the stock, especially since it has gained 69% year-to-date.
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.
