London-based online marketplace Farfetch Limited (FTCH) recently confirmed that it is discussing a potential expansion of its existing Luxury New Retail strategic partnership with Richemont. The company also reported revenues of $582.63 million and an adjusted loss per share of $0.14 for its fiscal third quarter, ended September 30, 2021.

While the company missed the consensus revenue estimate by 1.5%, it beat the consensus EPS estimate by 11.1%. FTCH also trimmed its full-year growth forecast for its Digital Platform GMV from 35%-40% to 33% year-over-year.

The stock has lost 12.9% in price over the past month and 47.5% over the past nine months to close yesterday’s trading session at $34.90. In addition, it is currently trading 52.8% below its 52-week high of $73.87, which it hit on February 19, 2021. Furthermore, Apple’s iOS privacy changes, supply chain disruption, and rising input costs make its near-term prospects bleak.

Here is what could influence FTCH’s performance in the upcoming months:

Ongoing Investigations

Several law firms are investigating potential claims against FTCH for possible securities violations. It is alleged that after the market close, the company’s shares declined  after it posted its third-quarter earnings, which missed sales expectations due to an increase in subsidized shipping, higher duties costs, and an increase in first-party prices of goods sold.

Stretched Valuation

In terms of forward EV/EBITDA, FTCH’s 3,177.68x is 29,794.3% higher than the 10.63x industry average. Similarly, its 250.45x forward non-GAAP P/E is 1,465.4% higher than the 16x industry average. Furthermore, the stock’s 145.42x and 5.71x respective forward P/CF and P/Sare significantly higher than the 13.32x and 1.27x industry averages.

Low Profitability

In terms of trailing-12-month CAPEX/Sales, FTCH’s 1.45% is 39.9% lower than the 2.41% industry average Likewise, its 0.66% trailing-12-month asset turnover ratio is 37.3% lower than the 1.05% industry average. Furthermore, the stock’s trailing-12-month net income margin, ROTC, and ROTA are negative compared to the 6.56%, 7.81%, and 6.22% respective  industry averages.

Unfavorable Analyst Estimates

Analysts expect FTCH’s EPS to decrease 122.2% in the quarter ending March 31, 2022, and 647.4% in its fiscal 2022. In addition, its EPS is expected to decline at a rate of 57.1% per annum over the next five years. Also, its EPS is expected to remain negative in the current quarter, next quarter, and next year.

POWR Ratings Reflect Bleak Prospects

FTCH has an overall D rating, which equates to a Sell in our POWR Rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FTCH has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.

FTCH also has a C grade for Sentiment. This is justified as analysts expect its EPS to decline.

The stock has a D grade for Stability, consistent with its 3.14 beta. In addition, FTCH has an F grade for Value, which is in sync with its higher-than-industry valuation ratios.

FTCH is ranked #64 of 77 stocks in the F-rated Internet industry. Click here to access FTCH’s ratings for Growth and Momentum as well.

Bottom Line

FTCH is currently trading below its 50-day and 200-day moving averages of $39.24 and $47.17, respectively, indicating a downtrend. Moreover, its shares could keep retreating in the near term due to global supply chain issues and slowing e-commerce consumer activity. So, we think it is best avoided now.

How Does Farfetch (FTCH) Stack Up Against its Peers?

While FTCH has an overall POWR Rating of D, one might want to consider investing in the following Internet stocks with an A (Strong Buy) or B (Buy) rating: Travelzoo (TZOO), Yelp Inc. (YELP), and AcuityAds Holdings Inc. (ACUIF).

FTCH shares were trading at $36.31 per share on Wednesday afternoon, up $1.41 (+4.04%). Year-to-date, FTCH has declined -43.10%, versus a 26.48% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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