3 Stocks to Avoid This Week

This article was originally posted here

There's never a dull moment when it comes to investing, and some stocks are riskier than others. I have some near-term concerns with how the market will treat Stitch Fix (NASDAQ:SFIX), Norwegian Cruise Line (NASDAQ:NCLH), and Luckin Coffee (NASDAQ:LK) shares this week.

Stitch Fix reports potentially problematic quarterly results. Norwegian Cruise Line and Luckin Coffee pulled off what seems to be unsustainable rallies last week. Let's size up all three scenarios. A seated woman looking at the ground as a red arrow moves lower on the wall behind her.

IMAGE SOURCE: GETTY IMAGES.

Stitch Fix

Stitch Fix is a dynamic e-commerce company that uses data science-fueled stylists to deliver its personalized wardrobe selections to its growing customer base. It reports its fiscal third-quarter results shortly after Monday's market close. 

It's easy to be concerned here. Growth has slowed, with revenue climbing 22% in back-to-back quarters, and its guidance in early March was calling for further deceleration — eyeing top-line growth of 14% to 16% for the report it's about to announce. Investors hated the report, sending the stock 42% lower to the pre-teens in the three subsequent trading days. 

A lot has happened since then. The pandemic would go on to widen in scope, making it perfectly fine to just keep wearing those sweatpants around the home. You don't need new pants or shoes when your videoconference meeting is just a shot of you above the shoulders. A pair of Stitch Fix distribution centers had to temporarily close down, and by early April Stitch Fix withdrew its earlier guidance. 

Analysts now see revenue falling just short of the $408.9 million it served up for the same period a year earlier, and it could be even worse. A lot of analysts have yet to lower their targets in light of the new normal, and at least one Wall Street pro sees the top line breaking below $300 million. Stitch Fix even announced last week that it would be laying off 1,400 of its stylists in California, hiring back stylists in lower-cost markets. Apparel sales in general have been weak during the COVID-19 crisis.

The kicker here is that despite all of these headwinds shares of Stitch Fix have more than doubled from the initial post-earnings sell-off last time out. Revenue won't be growing 14% to 16% in Monday's report. The fundamentals have deteriorated as the stock has appreciated. This could be an accordion in a trash compactor, and that doesn't end pretty.

Norwegian Cruise Line

Last week was awesome for cruise line stock investors. The three publicly traded operators soared 34% to 43% — and Norwegian Cruise Line was leading the pack with the largest of the gains. The rub is that the industry isn't necessarily in better shape than it was a week ago. 

Cruise lines are still grounded until at least early August. There are 60,000 crew members still aboard the industry's cruise ships waiting to be repatriated to their home countries. With COVID-19 cases climbing again in Norwegian Cruise Line's home state of Florida, the travel market likely slow to come around, and Norwegian itself as the smaller player given the possibility of a shakeout, it wouldn't be a surprise to see some kind of retreat in the current climate.

Luckin Coffee

Shares of the once promising Chinese coffee-brewing chain were halted for more than a month after conceding that it was cooking the books. The stock naturally tanked after trading resumed in mid-May, but this past week it soared past the price it was when it was halted.

There is no positive news out of Luckin's camp to justify the 36% pop the shares experienced on Friday. We still don't have actual financials, even though we know that most of its sales in 2019 were fabricated. Luckin Coffee as a concept continues to operate in China, so it's not as if the shares are worthless. However, with a lot of dark clouds remaining — and the inherent risk these days of buying into Chinese stocks — it's hard to justify last week's enthusiasm for an investment that has now more than quadrupled off of its May 22 bottom.  

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