Many investors like to look for stocks with low share prices, particularly if those low prices are much lower than they have been in the recent past. In other words, they're trying to bottom-fish for a good deal.
Sometimes that strategy works, but it's often the case that the companies that underlie these low-priced stocks are simply bad businesses, which can lead to further -- potentially significant -- losses for shareholders.
To that end, here are three tech stocks that might be tempting for investors to try to buy for a rebound but, in my view, are ultimately just bad businesses that I wouldn't invest in right now: GoPro (GPRO -1.82%), Fitbit (FIT), and Snapchat (SNAP 3.57%).
GoPro is a no-go
When GoPro first went public back in 2014, the shares surged from around $36 per share to nearly $90 per share before plummeting. The stock has sometimes bounced on its way down, but the trend in the share price has been unmistakably down.
The downward trend in the share price is reflective of the company's poor underlying business fundamentals. On Aug. 2, GoPro announced its second-quarter financial results and they weren't pretty: Revenue was down 5% from a year ago; its gross margin percentage contracted to 30.8%, down from 36.2% a year earlier; and its operating loss widened.
This isn't a short-term trend, either. GoPro's revenue, margins, and operating income have all been on the decline for quite some time, as you can see in the chart below:
Ultimately, GoPro's business isn't in good shape, and the company's recent financial performance doesn't give me a lot of hope that things are getting much better. This is a stock that I'd steer clear of.
Fitbit is unfit for my portfolio
Another failed IPO is Fitbit, which went public in 2015, saw its share price peak at close to $50 per share, and has been on the decline ever since. As of writing, the shares closed at $5.83 per share.
Fitbit's business has also performed poorly since it went public. What's interesting is that the company was profitable and growing when it went public, but since then Fitbit's revenue has been going in the wrong direction and the wearable device specialist is now posting steep losses.
Last quarter, Fitbit reported some ugly results, as sales dropped 15% thanks to a "20% decline in devices sold, partially offset by an average selling price increase of 6% to $106 per device." The company reported negative free cash flow of $83 million.
Looking to the current quarter, management guided to a revenue decline of 3% from the same quarter a year ago as sales of its smartwatches grow and as declines in its tracker revenue moderate. The company also said that it's expecting "free cash flow of approximately negative $30 million in Q3 and net income per share between a $0.02 loss and a $0.01 profit."
That outlook is hardly inspiring.
Ultimately, Fitbit just doesn't seem like a great business or a business with the potential to be great, so I'm keeping it out of my portfolio.
Staying away from Snapchat
Another stock that I'm staying far away from is Snapchat, which has been a poor performer year to date:
Unlike Fitbit and GoPro, Snapchat isn't a business that's in decline. Indeed, analysts expect the company to post 40% revenue growth in 2018 and are betting on another 38.2% growth in the following year.
Some issues that I have with Snapchat stock are the following:
- It's losing money (analysts expect the company to post a loss of $0.55 per share this year) and is likely to continue to lose money for the foreseeable future (analyst consensus is that Snapchat will lose $0.42 per share next year).
- The stock is extremely expensive: It's trading at nearly 12 times analyst estimates for 2018 revenue and nearly 8.5 times expected 2019 revenue. By contrast, the social media bellwether Facebook (META 0.84%) trades at roughly 8.9 times 2018 analyst revenue estimates and around 7.1 times 2019 estimates. Facebook's growth rates aren't expected to be as high as Snapchat's (36.9% in 2018 and 25.1% in 2019), but unlike Snapchat, Facebook is minting growing profits.
To top it all off, as my fellow Foolish colleague pointed out, management seems to have a credibility problem.
I simply think there are better social media stocks, let alone other tech stocks, that investors can put their hard-earned money in. I'm steering clear of Snapchat.