Shareholders of 17 Education & Technology Group Inc. (YQ, Financial) and Lordstown Motors Corp. (RIDE, Financial) have seen their holdings dramatically decline in value in the last year, underperforming the S&P 500 Index substantially. It also appears their profitability is not improving, and their financial conditions are poor. In addition, sell-side analysts on Wall Street have issued lackluster recommendation ratings for these companies, while most of the market has an overweight median rating. This indicates the share prices of these stocks are expected to continue to underperform the market in the coming months.
17 Education & Technology Group Inc.
17 Education & Technology Group Inc. (YQ, Financial) is a Beijing, China-based provider of K-12 online education services in mainland China. The company specializes in technical education.
Shares have tumbled 95.4% over the past year, underperforming the S&P 500 by 105%.
17 Education & Technology Group Inc. does not pay a dividend. Financial conditions don't look solid as the Altman Z-Score is -3.6, indicating financial distress and the possibility of bankruptcy. Additionally, the return on invested capital is -174%, which means value is being destroyed rather than created.
In terms of profitability, both the top and bottom lines are on the decline, and operating and net margins are negative.
Due to the large population, there are many students in China. Despite a strong demand for education, however, it is currently not easy to run a business in this field in China as the number of institutions has grown enormously in recent years due to massive government spending on schooling. Moreover, the government has recently cracked down on for-profit education in order to curb the increasing household spending on school.
Shares traded around $2.11 each in early trading on Wednesday for a market capitalization of $103.30 million and a 52-week range of $0.88 to $49.60.
On Wall Street, the stock has one recommendation rating of underweight.
Lordstown Motors Corp
Lordstown Motors Corp. (RIDE, Financial) is a Lordstown, Ohio-based developer of an electric full-size pickup truck for fleet customers.
Shares have dropped 86% over the past year, while the S&P 500 has increased 10% in the same timeframe.
Lordstown Motors Corp. does not pay dividends.
The balance sheet shows that Lordstown Motors' ROIC is -138.50%, indicating that the company is not creating value but destroying it.
Regarding profitability, the company is still pre-revenue, as it has yet to sell any vehicles. It is expected to reach commercial production in Q3 2022, and then sales of the first units are scheduled to begin.
The company needs more cash to reach profitability, but getting more funding will become difficult due to inflation and expected interest rate hikes. In addition, the increase in raw material prices due to the crisis in Ukraine and the negative consequences of the Covid-19 pandemic will weigh on the company's future budgets, as the procurement of inputs for the manufacturing process will be expensive. At this point, there is a good chance that the stock price will continue to underperform rather than recover, in my view.
Shares traded around $2.40 each in early trading on Wednesday for a market capitalization of $468.61 million and a 52-week range of $1.99 to $18.50.
On Wall Street, the stock has a median recommendation rating of underweight.
