Nearly 1,000 exchange-listed stocks hit new 52-weeks lows last week, and it's easy to see why. It was a rough week for the market, including the biggest one-day swoon of 2019. A lot of the investments getting rocked make perfect sense, but some of the banishments are more than a little bit curious.
Rite Aid (RAD +0.00%), Dropbox (DBX +0.50%), and Grubhub (GRUB +0.00%) all hit new lows last week. Let's go over the reasons why the market has discarded these three household names.
Image source: Dropbox.
Rite Aid
It's not entirely shocking to see Rite Aid hitting all-time lows. The drugstore chain has been reeling since a pair of potential buyouts fell through in back-to-back years. Rite Aid has struggled to bounce back, and a 1-for-20 reverse split to regain exchange compliance has only made things worse.
The Albertsons merger falling through last summer was the ultimate dagger, and that wound was shareholder-inflicted as it was retail and institutional investors feeling that Rite Aid was being undervalued in the deal that led to the drugstore operator to call of the combination with the larger supermarket giant. Things just haven't been the same, and the stock has plummeted 84% since calling off the Albertsons deal. With no signs of turning its flat revenue growth around and losses mounting for the third year in a row, it's fair to say that the merger-bashing shareholders have to resent forcing Rite Aid's hand in calling off the combination.
Dropbox
There was a time when cloud computing was the equivalent of the Midas touch, and companies with web-hosted platforms were rocking regardless of fundamentals. Dropbox was a hot IPO when it went public at $21 last year, more than doubling when it peaked three months later. Unfortunately for investors, Dropbox has gone on to more than give back all of those gains. Dropbox is now a broken IPO trading in the high teens.
It's not a lack of profitability keeping the bulls away. Dropbox has been consistently profitable since the IPO, and adjusted earnings have landed ahead of Wall Street profit targets through each of its first five quarters as a public company.
| Quarter | EPS Estimate | EPS Actual | Surprise |
|---|---|---|---|
| Q2 2018 | $0.07 | $0.11 | 57% |
| Q3 2018 | $0.06 | $0.11 | 83% |
| Q4 2018 | $0.08 | $0.10 | 25% |
| Q1 2019 | $0.06 | $0.10 | 67% |
| Q2 2019 | $0.08 | $0.10 | 25% |
EPS = earnings per share. Data source: Yahoo! Finance.
Slowing top-line growth is the bigger problem. Revenue rose 31% for all of 2017, but it has gone on to decelerate for eight consecutive quarters. Dropbox revenue climbed just 18% higher last time out. With the pace of billings and deferred revenue slowing, even the high end of Dropbox's top-line guidance calls for continuing deceleration.
Grubhub
Restaurant delivery through third-party apps is an important chunk of the gig economy, and Grubhub remains one of the booming market's leaders. It's a win-win proposition. Restaurant owners get treated to incremental sales in exchange for a piece of the business. Customers pay for the convenience of home delivery, with Grubhub taking a slice of that action. It's working -- on the surface -- for Grubhub, with revenue climbing 36% in its latest quarter.
Top-line growth has decelerated for three consecutive quarters, but things are getting more problematic on the bottom line. Grubhub stands out for its adjusted profitability, but the cutthroat nature of this niche is forcing it into margin-thinning promotions with delivery expenses rising faster than revenue. Earnings are going the wrong way, and Grubhub has now missed Wall Street targets in two of the past three quarters. There's still a lot to like at Grubhub at these levels, but it will have to prove that it can beef up its margins sooner rather than later.
