Investor Cathie Wood, the founder of Ark Investment Management Services, LLC, operates the world’s largest actively traded ETF. She is known for her bullish stance on Tesla, Inc. (TSLA). Its gains from this stock put ARK Innovation ETF (ARKK) on the map as one of the most successful, industry-disruptive tech ETFs delivering manifold returns. However, the renowned ETF has been losing momentum since March. Specifically, it has declined 19.1% over the past three months due to investors’ rotation away from overvalued tech stocks. ARKK has declined 6.7% over the past five days, and 12.8% since March 1.
As a highly regarded investor on Wall Street, Wood’s bets are replicated by millions of investors worldwide. However, her contrarian investment approach can lead investors to big losses on their bets because many investors do not possess sufficient capital to hold their investments for the long term. As the U.S. focuses on mass vaccine distribution and infrastructure development, technology has taken a backseat as the “it” investment sector. Furthermore, with rising benchmark treasury yields making equities less attractive, investors are fixating now on companies with solid fundamentals and strong growth potential in the short term.
ARKK holdings Twilio Inc. (TWLO), Teladoc Health, Inc. (TDOC) CRISPR Therapeutics AG (CRSP) and Invitae Corporation (NVTA) possess weak earnings growth outlooks. In fact, their earnings are expected to decline in the coming quarters or years. While Wood possesses the capital required to hold her investment positions until these companies’ fortunes improve, we think these stocks might not be well suited for retail investors.
Twilio Inc. (TWLO)
Ark Innovation ETF (ARKK) owns approximately 1.81 million shares of TWLO (as of April 20), representing a 2.78% weighting in the cloud communications platform. The stock has a #11 weighting rank in ARKK. Ark Investment Management LLC has an 1.13% stake in the company. Wood has been investing in TWLO since August 2020. After gaining 239.3% over the past year, shares of TWLO have declined 4.9% over the past five days.
TWLO recently raised $500 million from a senior notes offering in March, which is expected to fund its general corporate and business expansion expenses. The cloud communications platform announced on March 17 that it would provide related COVID-19 communication to approximately one billion people worldwide. While the company is well-positioned to grow in tandem with the tech industry in the long term, the stock has been witnessing a sharp pullback recently. They have declined 4.9% over the past five days. As investors adopt a fundamental approach towards investing in response to market’s potential overvaluation and threat of a correction, TWLO’s poor financials and bleak growth estimates mean the stock is best avoided in the short run.
TWLO’s revenues increased 65% year-over-year to $548.10 million in the fourth quarter ended December 31, 2021. This can be attributed to a 139% rise in its dollar-based revenue expansion rate. However, the company reported an operating loss of $185.29 million, up 97.5% from the same period last year. Its net loss increased 98.7% from the prior year quarter to $179.35 million, while its loss per share rose 71.2% from the year-ago value to $1.13.
A consensus revenue estimate of $2.44 billion for its fiscal year 2021 indicates a 38.5% improvement year-over-year. Analysts expect TWLO’s revenues to rise 46.4% in the about-to-be-reported quarter, and 44.4% in the current quarter. However, the Street expects TWLO’s EPS to decline 156.5% year-over-year to negative $0.13 in its fiscal year 2021. Also, the company’s EPS is expected to decline 266.7% from its year-ago value to negative 0.10 for the most recent quarter, ended March 2021, and 155.6% from the prior year quarter to $0.05 in the current quarter ending June 2021.
TWLO’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
TWLO has a grade of D for Value, Stability, and Quality. Of the 12 stocks in the F-rated Software – SAAS industry, TWLO is ranked last.
Click here to get all TWLO ratings (Momentum, Sentiment, and Growth).
Click here to check out our Software Industry Report for 2021
Teladoc Health, Inc. (TDOC)
Wood’s Ark has a 5.26% stake in the telehealth company. ARKK holds approximately 8.11 million shares of TDOC, representing a 6.25% combined weighting. TDOC is one of the fund’s biggest holdings, with a #3 weighting rank across ARKK.
Wood has been investing in TDOC in tranches since September last year. While the surging telehealth industry paved the way for TDOC’s gains over the past year, the company is expected to witness a pullback as the economy’s gradual reopening incentivizes people to opt for in-person health check-ups. The stock has declined 18.6% over the past six months, and 9.5% year-to-date.
TDOC reported a 145% year-over-year rise in total revenues to $383.32 million in fiscal fourth quarter ended December 31, 2020. However, its net loss increased 1,973.7% from the same period last year to $394 million. Its loss per share amounted to $3.07, up 1,080.8% from its year-ago value.
The Street expects TDOC’s revenues to rise 81.5% year-over-year to $1.99 billion this year, and by 31.2% from the same period last year to $2.60 billion in its fiscal year 2022. However, despite the anticipated rise in revenues over the next two years, the company’s earnings are expected to decline. Analysts expect TDOC’s EPS to decline 55% in its fiscal first quarter (ended March 2021), and by 50% in the second quarter (ending June 2021). Also, the company’s EPS is expected to remain negative until at least 2021. TDOC company missed the consensus EPS estimates in each of the trailing four quarters.
TDOC’s POWR Ratings reflect its poor prospects. The stock has an overall rating of F, which equates to Strong Sell. TDOC has a Value and Sentiment grade of F also. It is ranked #80 of 80 stocks in the C-rated Medical – Services industry.
In total, we rate TDOC on eight different levels. Beyond what we’ve stated above, one can check out additional TDOC ratings for Stability, Quality, Momentum, and Growth here.
Click here to checkout our Healthcare Sector Report for 2021
CRISPR Therapeutics AG (CRSP)
Wood has lost faith in the gene editing company, as evidenced by her trades over the past couple of months. Wood has been exiting her position in the stock since December, selling 453,851 shares since December 22. ARKK currently holds approximately 5.12 million shares of CRSP, with a 2.48% weighting in the ETF. Wood has a 6.86% stake in the company. CRSP currently has a #13 weighting rank in the company.
CRSP is making significant progress in its medical research in gene therapy. However, given that it has a relatively new approach to medicine that is still in the developmental stages, it should take some time before CRSP turns profitable.
CRSP’s revenues declined 99.5% from the prior year quarter to $370,000 in the fourth quarter ended December 31, 2020. Its loss from operations was t $107.76 million, up 1,081.2% year-over-year. Its comprehensive net loss and loss per share stood at $106.99 million and $1.50, respectively, indicating a substantial decline from positive year-ago values.
Analysts expect CRSP’s EPS to decline 28.7% in the most recent quarter (ended March 2021), and 16.9% in the current quarter (ending June 2021). The company’s EPS is expected to grow at a rate of 200.4% per annum over the next five years and is expected to remain negative until at least 2022. CRSP has a poor earnings surprise history; it missed the Street’s EPS estimates in each of the trailing four quarters. A consensus revenue estimate of $1.14 million for its fiscal first quarter indicates a 62.5% decline year-over-year. The Street expects the company’s revenues to decline 93.7% in the current quarter.
CRSP has declined 20.5% year-to-date, and 6.1% over the past month. This follows the stock’s 127.6% gain over the past year.
CRSP has an overall F rating, which equates to Strong Sell in our proprietary rating system. It has a D grade for Growth, Stability, Sentiment, Quality, and Momentum. The stock is ranked #472 of 492 stocks in the F-rated Biotech industry.
Click here to view CRSP’s rating for Value.
Click here to checkout our Healthcare Sector Report for 2021
Invitae Corporation (NVTA)
Medical genetics testing and healthcare decision making company NVTA has a 2.19 % weighting in Wood’s ARKK ETF. The ETF currently holds 14.83 million shares of NVTA, representing a #15 weighting rank. Wood had a 7.78% stake in the company, as of April 20. However, she hasn’t taken any notable action in the stock since October last year. After selling approximately 325,783 shares from the last week of September through l October 6, Wood hasn’t made any trades in the company. Shares of NVTA have declined by 27.5% over the past six months, and 18.1% year-to-date.
For the fourth quarter, ended December 31, 2020, NVTA’s revenues increased 51.5% year-over-year to $100.43 million. However, the company’s loss from operations increased 319.4% from the same period last year to $331.48 million. Its net loss was $343.84 million, up 315.7% from the prior year quarter. Its loss per share rose 69.6% from the year-ago value to $1.34.
Analysts expect NVTA’s revenues to rise 70.8% year-over-year to $101.46 million in the about-to-be reported quarter, and 65.7% from the same period last year to $463.21 million in its fiscal year 2021. However, the company’s EPS is expected to remain negative until at least 2022.
NVTA’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell. NVTA also has an F grade for Value, Sentiment, and Quality. Of the 58 stocks in the D-rated Medical – Diagnostics/ Research industry, NVTA is ranked last.
We have also rated NVTA for Growth, Stability, and Momentum. Get all NVTA ratings here.
The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Click here to checkout our Healthcare Sector Report for 2021
TWLO shares were trading at $368.17 per share on Wednesday afternoon, up $0.52 (+0.14%). Year-to-date, TWLO has gained 8.77%, versus a 11.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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