After a moderate weakness in September, Canadian markets have once again started their upward climb in October. TSX stocks at large fell 2% from their record highs recently. However, some top growth names have exhibited a notable weakness, declining more than 20% recently. While broader markets look in great touch, let’s see how these losers are positioned for the future.
BlackBerry (TSX:BB)(NYSE:BB) stock has been unable to hold onto its gains for long. Though it is still sitting on handsome gains of 90% in the past year, it has lost 40% since June 2020. Moreover, it has dropped 20% in the last month.
The weakness is quite evident in BB given its weak fundamentals. Although the company operates in swanky areas like cybersecurity and the Internet of Things (loT), BlackBerry’s long-term operational growth and profitability still seem like a distant dream.
For the latest reported quarter, BlackBerry clocked total revenues of US$175 million, a drop of more than 32% compared to the same period last year. And it has not been a one-time thing, either. BlackBerry has been seeing fast declining revenues for years. On the profitability front, the company has seen net profits on just two occasions since 2012.
So, the weakness in BB stock is quite justified. It does not look attractive from the valuation perspective either, even after the fall. It is trading nine times its sales and looks expensive. I won’t enter BB stock at these levels. Investors can wait for stable revenue growth for consecutive quarters that could send the stock back to record levels.
Children’s entertainment company Spin Master (TSX:TOY) stock was another one that was notably weak recently. It has lost 25% of its market value since late August.
Spin Master is a $4.2 billion company that offers a portfolio of toys, entertainment franchises, and digital games. The company saw a steep increase in its profits driven by strong contributions across verticals in the latest reported quarter. However, one area that stood tall was the segment of digital games.
In Q2 2021, revenues from digital games increased 262% year over year, indicating a second consecutive quarter of such a sharp surge. Spin Master has aggressively increased its digital presence in the last few quarters, with its marker Toca Boca and Sago Mini brands. These two have more than 50 million monthly active users collectively.
So, what led to the stock’s fall?
As the pandemic and related restrictions helped grow Spin Master’s digital games vertical, re-opening might dent its growth streak to some extent. As a result, investors might see its topline growth slowing in the next few quarters. Along with re-opening economies, valuation concerns also might have weighed on Spin Master stock.
However, Spin Master offers attractive long-term growth prospects with its diversified revenue base, growing global presence, and strong topline growth potential.
After the correction, TOY stock is not cheap per se. However, it looks relatively attractive considering peer growth stocks with their stretched multiples.