In a stock market as heated as this, it's not so hard to make a case that there are a lot of stocks investors should avoid. Plenty of high fliers will likely get their comeuppance if and when the party comes to an end.
But right now, regardless of whether their stocks are soaring or still dwell in the basement, there is good reason investors should avoid Fitbit (NYSE: FIT), Pandora (NYSE: P), and Urban Outfitters (NASDAQ: URBN).
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With few people wearing traditional wristwatches, it's understandable why Fossil continues to struggle, but Fitbit was going to change the perception of timepieces by making wearable technology that tied into the growing interest in fitness and health.
Unfortunately, its single-task device also came around as wearable tech was gaining ground elsewhere, and once Fitbit proved the value of such devices in the marketplace, others including Apple and even Garmin moved into the space with multifunction smartwatches.
While Fitbit has since sought to play catch-up with its own smartwatches, like its recently introduced Ionic, the results have been discouraging. Sales of Ionic and the single-purpose Alta HR accounted for 32% of Fitbit revenues in the most recent quarter, but as those revenues tumbled 22% year over year and last year's $46 million profit turned to a $2.8 million loss this time around, it's clear its new devices won't reverse the trend.
It seems Fitbit's best hope is to be bought out by someone. I'd avoid buying this stock.
Another revolutionary and visionary, Pandora's potential to change how we listen to music seemed enormous at the start, but a few years on and monetizing its music streaming service remains a challenge. Even after adding 1 million paying customers in the quarter so that almost 5.2 million listeners actually pay to avoid hearing advertising and be allowed to skip past songs they don't want to hear, they only represents 7% of the 73.7 million active listeners that prefer the free option.
Ad revenue is still not growing much, up only 1% in the most recently reported period, and though analysts see hope in the service getting into a decidedly non-music format -- podcasts -- there still doesn't seem to be momentum here for Pandora to really rev up growth as once was thought.
Ultimately, Pandora remains an unprofitable business and the music streaming service's operating losses are nearly a half-billion dollars over the first three quarters as expenses far exceed revenues and now stand north of $800 million.
Pandora's stock is up 16% off recent lows, but this is one company investors should tune out.
Unlike the other two stocks presented here, Urban Outfitters is on a roll, up more than 80% from its 52-week low, though it still has a ways to go before it reaches the highs it fell from. Yet there's little reason for this clothing retailer to be doing so well.
Its namesake stores are in decline, as are its Anthropologie stores, which combined comprise more than three-quarters of the stores it operates. The one unit that does seem to be performing well, Free People, is the smallest of the three with just 124 stores as of the end of the second quarter.
Despite embarking on a campaign to actually enlarge the footprint of its Anthropologie chain, even as retailers everywhere are reducing theirs, Urban Outfitters has witnessed a steady decline in same-store sales there.
Although its just-released third-quarter earnings report showed its first across-the-board comps increase at each of its store concepts in more than two years, a single quarter doesn't make a trend. Having come so far so fast, investors should be wary that Urban Outfitters stock will retrace a lot of its gains.
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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, Fitbit, and Pandora Media. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Fossil Group. The Motley Fool has a disclosure policy.