In last week's article on three stocks to avoid, I predicted that AMC Entertainment Holdings (AMC +0.88%), Eventbrite (EB +0.34%), and GameStop (GME 0.29%) would have a rough few days.
- AMC tumbled 12% for the week. The shares fell in four of the five trading days. It reports earnings after Monday's market close, but I'm not singling it out as a stock to avoid this week.
- Eventbrite was the one that bucked the malaise, inching 1% higher last week. It posted better-than-expected quarterly results, but near-term concerns remain as COVID-19 cases across the country start to climb again.
- Finally, GameStop moved 6% lower. Like AMC, GameStop stock moved higher only on Thursday last week.
The three stocks averaged a 5.7% decline for the week. The S&P 500 rose 0.9%, so I was right for the sixth time in the past seven weeks. Right now, I see Fossil (FOSL 2.71%), Cricut (CRCT 2.04%), and GameStop as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
Image source: Getty Images.
Fossil Group
Father Time is ticking on Fossil Group. The once-iconic watchmaker has been fading in recent years. Revenue has declined for six consecutive years, and the company is already on its way to stretching that streak to seven years of negative top-line growth.
It's worse than you think. The rate of the year-over-year revenue hits is accelerating.
- 2015: Down 8%
- 2016: Down 5.8%
- 2017: Down 8.4%
- 2018: Down 8.8%
- 2019: Down 12.7%
- 2020: Down 27.3%
Revenue took a 7% hit in the fiscal first quarter of 2021, but that's still pretty dreadful when you consider last year's pandemic-sandbagged results. Fossil Group reports its second-quarter results on Wednesday, and that's why the brand is making the cut in this week's list.
The company has tried to make the most of the poor hand it's been dealt. It pushed into the smartwatch market when folks stopped buying traditional watches, but you need to have deep market penetration to make a dent in that cutthroat space. It has tried to diversify into other accessories through licensed partnerships, but the end result is still a fading company that hasn't turned a profit since 2016.
Cricut
Another stock that could be heading into a challenging earnings report this week is Cricut. It reports on Thursday afternoon.
Cricut's fundamentals are in much better shape than Fossil Group's. Its business is booming. Revenue accelerated from a healthy 43% increase in 2019 to a 97% top-line surge last year. Cricut's computer-controlled cutting machines are a hit with home crafters. It was a hot IPO in March, and the stock has soared 80% since hitting the market at $20.
Its lofty valuation here is the result of the crafty vibes that made Etsy (ETSY 0.78%) and Pinterest (PINS 3.82%) huge pandemic winners, but did you catch what happened earlier this earnings season? Etsy and Pinterest suffered double-digit-percentage hits after posting disappointing quarterly results. The latter stunned investors with a sequential and year-over-year decline in active users. It was still able to grow its business by improving its monetization with advertisers willing to pay more to reach its thinning audience, but that's not a lever that Cricut can pull here.
Etsy's metrics remained positive, but sharp deceleration in sales growth as well as active buyer and seller growth rates spooked the market. In short, Cricut is vulnerable heading into Thursday's report.
GameStop
GameStop shares declined in an otherwise buoyant week, and even news that it will be tapped for the S&P MidCap 400 wasn't enough to turn things around. GameStop is also the only name not reporting earnings this week, and that's good news for bulls given how the chain's stock has historically responded to its quarterly updates.
However, it's problematic that the market is generally losing its patience with meme stocks that have been soaring despite decaying business models. We're at the point where companies will have to earn their upticks, and GameStop's business model won't have the same moat in the realm of digital distribution as it does in its brick-and-mortar stronghold.
If you're looking for safe stocks, you aren't likely to find them in Fossil Group, Cricut, and GameStop this week.
