- Carnival shares sank 4% last week.
- Madison Square Garden Sports was the only stock to move higher last week, climbing 4%.
- Finally, GameStop moved 2% lower.
The three stocks averaged a 0.7% decline for the week. It was close, but the S&P 500 slipped 0.6%, so I was right for the eighth time in the past nine weeks. Right now, I see American Software (AMSWA 0.41%), Carnival, and Robinhood Markets (HOOD -0.74%) as vulnerable investments in the near term. Here's why I think these are three stocks to avoid this week.
On the surface, American Software is a unicorn -- in a bad way. It's in the red-hot niche of cloud-based enterprise software, but it's consistently profitable and even shells out a decent dividend. The problem is that unlike the laundry list of market darlings in this niche with compound words as monikers, American Software is a slow grower.
Revenue has declined in three of the past five fiscal years. More to the point, American Software's top line has declined every other year. We're in an up year now, but the math isn't kind. The two-year revenue growth rate at American Software has clocked in at 2% or lower for each of the past five years.
Momentum is improving at American Software, and that's naturally a dangerous thing to bet against. American Software's shift to a recurring revenue is resulting in double-digit growth in subscription revenue, even if reported revenue went the wrong way again in its latest quarter. American Software has blown through Wall Street profit targets with ease over the past year, and the stock soared 39% the day after it posted its most recent financial results. American Software reports again this week, stepping up with fresh numbers after Wednesday's market close.
The stock will move sharply one way or the other on Thursday. There's a good chance that American Software moves significantly higher following the report, but I think it still has a long way to go before it can be lumped together with the more consistent winners in the supply chain management and enterprise software space. It did wind up giving back most of its gains following its last blowout report. Gravity is real for companies that haven't earned the right to fly.
The biggest low from last week's list deserves an encore performance. It was a rough week for the cruise industry in general and Carnival in particular. One analyst revised his price target on Carnival to a point that is well below where the stock is now.
The Carnival Vista outbreak from two weeks ago that saw 27 crew members and passengers contract the COVID-19 virus also notched its first casualty. An elderly woman who was sent off the ship for medical attention in Belize died this past week of COVID-19 complications. Carnival's reputation is taking on water, and not just because a passenger died. Why was she left in Belize with her family having to finance her return back to the U.S. to receive better care that came too late?
The delta variant has thrown a wrench into the cruise industry's plans. The cruise lines will return to their former glory at some point, but it's not close to happening anytime soon.
It's not often that I put a name I actually own on this list, but Robinhood seems to have earned the spot. It posted its first quarterly report as a public company last week, and it didn't do enough to impress Wall Street.
I was hopeful that Robinhood would deliver a blowout. Analyst expectations seemed low, and I was right. However, Robinhood offered uninspiring guidance on current trading trends, and it didn't do enough to push its catalysts for future growth.
By the end of this month -- next Monday, if you're curious -- the 301,573 Robinhood users who took advantage of the trading exchange's offer to get its active accounts on the IPO can sell their shares without risking near-term access to new offerings on the platform. If the stock keeps losing momentum, it could be a busted IPO before the end of the month.
If you're looking for safe stocks, you aren't likely to find them in American Software, Carnival, and Robinhood Markets this week.