What happened
Shares of Aterian (ATER +3.72%) slumped 11% on Tuesday after the company reported disappointing first-quarter earnings. The roll-up of online consumer product brands posted heavy losses and a revenue decline in the period. The stock was down as much as 19% during trading hours, and as of 12:36 p.m. ET the stock is down 11.3% for the day.
So what
On May 9, Aterian reported its financial results for the first three months of 2022. Revenue declined 13.3% to $41.7 million in the period due to supply chain issues across its product portfolio and deteriorating results from some of its recent acquisitions. On this revenue base, the company posted an operating loss of $36.3 million, or almost 100% of its revenue. There's no way to beat around the bush, these are terrible results. It isn't surprising then that investors decided to sell Aterian stock today.
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In Q1, Aterian burned $13.2 million in operating cash flow. At this current burn rate, the company will go through its $44 million cash pile by the end of this year. If the company can't turn around these losses, it will need to turn to the capital markets and either raise cash through debt or equity financing. Both scenarios would be bad news for shareholders since Aterian already has a lot of debt on its balance sheet and has majorly diluted shareholders in the past few years.
Now what
As of this writing, Aterian's stock is down 15% this year and 77% in the past 12 months. The stock now trades at a price-to-sales ratio (P/S) below one, which is quite cheap compared to the market's average of 2.5. This might make you think Aterian's stock is cheap and that it is time to buy the dip.
But don't get fooled by the low P/S ratio. Aterian is a deeply troubled company with huge operating losses. It will need to engineer a rapid turnaround soon or else it is headed for a scenario where it either heavily dilutes shareholders with common stock offerings or files for bankruptcy. Both scenarios would be terrible for existing shareholders, and that's why investors should avoid Aterian stock at all costs right now.
