The unexpectedly steep slowdown in economic growth in the first quarter of 2023 suggests the economy is feeling the brunt of persistently high inflation and rising interest rates. Also, the aftermath of the recent bank crisis and fears of a financial crunch are slowing the economy.
Amid an uncertain economic backdrop, investors should be wary and avoid fundamentally weak stocks Pliant Therapeutics, Inc. (PLRX), Local Bounti Corporation (LOCL), and Kiromic BioPharma, Inc. (KRBP) now. Let’s discuss this in detail.
Since November 2022, the Federal Reserve’s staff economists have forecasted restrained growth and a weakening economy during policy decision meetings. According to minutes from the Fed’s most recent meeting held on March 21-22, Fed economists projected that the fallout from the March banking crisis could push the economy into a mild recession later this year.
Moreover, the central bank is anticipated to increase interest rates again for the tenth time in a year to moderate the economy and bring down prices. According to CME’s FedWatch Tool, markets are projecting more than 85% possibility of a 25-basis-point rate hike, lifting rates to 5%-5.25%.
The new Gross Domestic Product (GDP) report indicates that economic momentum is slowing amid higher rates and a bank crisis. According to recent data released by the Bureau of Economic Analysis (BEA), the economy grew by only 1.1% in the first quarter of 2023, falling short of estimates. This is a significant pullback from the 2.6% growth in the fourth quarter and a 3.2% increase in the third quarter of 2022.
Joseph LaVorgna, a chief economist at SMBC Nikko Securities America, said, “The economy is in a very unsettling, dicey situation’’. He added, ‘’All forward-looking measures are pointing to significant slowing.’’
Against this backdrop, it could be wise to steer clear of stocks PLRX, LOCL, and KRBP, with bleak fundamentals and poor outlooks. These stocks are rated F (Strong Sell) in our POWR Ratings system.
Let’s take a closer look at the fundamentals of these stocks:
Pliant Therapeutics, Inc. (PLRX)
PLRX is a clinical-stage biopharmaceutical company that discovers and develops therapies for fibrosis and related diseases by inhibiting integrin-mediated activation of transforming growth factor beta (TGF-B). Its flagship product candidate is bexotegrast (PLN-74809), an oral small-molecule, a dual-selective inhibitor of avß6 and avB1.
In terms of forward EV/Sales, PLRX is trading at 412.53x, considerably higher than the industry average of 3.62x. The stock’s forward Price/Sales of 507.23x is significantly higher than the industry average of 4.05x.
For the fourth quarter that ended December 31, 2022, PLRX’s revenue decreased 1.7% year-over-year to $1.97 million. Its loss from operations widened 52% from the year-ago value to $37.40 million. Moreover, its net loss and loss per share worsened by 42.9% and 5.9% year-over-year to $35.06 million and $0.72, respectively.
Analysts expect PLRX to report a loss per share of $2.76 for the fiscal year ending December 2023. The company’s revenue for the ongoing year is expected to decline 65.6% year-over-year to $3.33 million. Moreover, the company missed the consensus EPS estimates in three of the trailing four quarters.
PLRX has lost 19.7% over the past three months to close the last trading session at $28.00.
PLRX’s weak fundamentals are reflected in its POWR Ratings. It has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a D grade for Value, Quality, and Stability. It is ranked #365 out of 383 stocks within the F-rated Biotech industry.
Click here to see the other ratings of PLRX for Growth, Sentiment, and Momentum.
Local Bounti Corporation (LOCL)
LOCL is a producer and packer of fresh greens, including lettuce, herbs, and loose-leaf lettuce. The company supplies its products to food retailers and distributors in the food service industry.
In terms of forward EV/Sales, the stock is trading at 4.90x, 180.9 higher than the industry average of 1.75x. LOCL’s forward Price/Sales of 1.52x is 31% higher than the industry average of 1.16x.
LOCL’s loss from operations worsened by 111.4% year-over-year to $94.53 million for the fiscal year that ended December 31, 2022. Its adjusted EBITDA loss widened 67.4% from the prior year to $29.78 million. Additionally, the company’s net loss and loss per share worsened by 98% and 19.8% year-over-year to $111.07 million and $1.27, respectively.
For the fiscal year ending December 2023, the company is expected to report a loss per share of $0.90. Likewise, analysts expect LOCL to report a loss per share of $0.68 for the next fiscal year (ending December 2024). Furthermore, LOCL failed to surpass the consensus EPS and revenue estimates in three of four trailing quarters, which is disappointing.
Over the past six months, LOCL has plunged 82.3% to close the last trading session at $0.52.
LOCL’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. It has an F grade for Momentum and Quality. The stock is ranked last among 27 stocks in the D-rated Agriculture industry.
Click here to access LOCL’s ratings for Value, Stability, Sentiment, and Growth.
Kiromic BioPharma, Inc. (KRBP)
KRBP is an AI-driven allogeneic cell therapy company developing multi-indication therapies using Gamma Delta T cells to target solid tumors. Its product candidates include ALEXIS-ISO-1, an allogenic gamma delta CAR-T cell therapy targeting Isomesothelin, and ALEXIS-PRO-1, an allogeneic gamma delta chimeric T cell therapy targeting PD-L1.
On March 10, 2023, KRBP announced that it would conduct a 1-for-30 reverse stock split of its common shares to comply with Nasdaq's minimum bid price requirement. The split became effective on the same day.
A reverse stock split is often seen as a red flag for investors, indicating that a company is struggling and trying to boost its stock price artificially. KRBP’s decision to do so to meet Nasdaq’s minimum bid price requirement suggests a struggle to maintain its listing status.
KRBP’s loss from operations worsened by 20.9% year-over-year to $31.11 million for the fiscal year that ended December 31, 2022. Its net loss widened by 35.7% from the year-ago value to $34.73 million, resulting in a loss per share of $64.42. Moreover, as of December 31, 2022, the company’s total liabilities stood at $17.74 million, compared to $3.41 million as of December 31, 2021.
The stock has plummeted 52.9% over the past six months and 76.9% over the past year to close its last trading session at $4.19.
KRBP’s POWR Ratings reflect this poor outlook. The stock has an overall F rating, translating to a Strong Sell in our proprietary rating system.
KRBP has an F grade for Stability and Sentiment and a D for Growth and Momentum. It is ranked #376 among the 383 stocks in the Biotech industry.
In addition to the POWR Ratings I’ve highlighted, you can see KRBP’s ratings for Value and Quality here.
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PLRX shares were trading at $28.29 per share on Friday afternoon, up $0.29 (+1.04%). Year-to-date, PLRX has gained 46.35%, versus a 8.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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