Technology-enabled consumer products company Aterian, Inc. (ATER) in New York City recently announced that it plans to partner with Recurrent Ventures Inc. on strategic marketing initiatives. It has also signed up for an asset-backed credit facility with MidCap Financial Trust to pay off its remaining $25 million term loan with lender High Trail. However, the stock has declined 71.7% in price over the past six months to close yesterday’s trading session at $3.66.

ATER is currently trading 92.5% below its 52-week high of $48.99, which it hit on February 17, 2021, due to the Reddit-fueled short squeeze. In addition, its losses widened in the third quarter.

Moreover, the resurgence of COVID-19 cases worldwide and its impact on the already weakened global supply chains pose a severe risk to the company’s growth. So, ATER’s near-term prospects look uncertain.

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

Top Line Growth Does Not Translate into Bottom Line Improvement

For its fiscal third quarter, ended Sept. 30, 2021, ATER’s revenue surged 16% year-over-year to $68.12 million. However, its adjusted EBITDA for the quarter decreased 85.6% year-over-year to $728,000. In comparison, its net loss came in at $110.56 million, representing a 13,633.7% year-over-year increase. Also, its $3.13 loss per share represented a 6,160% increase year-over-year.

Ongoing Investigations

A law firm is investigating certain officers and directors of ATER following a class action complaint that was filed against ATER on May 13, 2021, that alleges that the company made false and/or misleading statements. It is alleged that the company failed to disclose that its organic growth is plummeting.

Unfavorable Analyst Estimates

Analysts expect ATER’s EPS to remain negative for the quarter ending March 31, 2022, and its fiscal 2022. And its EPS is expected to decline 364.7% year-over-year in fiscal 2021.

Lower-than-Industry Profitability

In terms of the trailing-12-month CAPEX/Sales, ATER’s 0.03% is 98.8% lower than the 2.50% industry average. Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative, versus the 17.23%, 7.56%, and 5.94% respective industry averages.

POWR Ratings Reflect Bleak Prospects

ATER has an F overall, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ATER has a C grade for Growth and an F grade for Sentiment, which are in sync with unfavorable analyst estimates.

ATER also has an F grade for Quality, which is in sync with its lower-than-industry profitability ratios. In addition, the stock has an F grade for Stability, consistent with its 2.71 beta.

ATER is ranked #44 of 45 stocks in the Technology - Electronics industry. Click here to access ATER’s ratings for Value and Momentum as well.

Bottom Line

ATER is currently trading below its 50-day and 200-day moving averages of $4.95 and $11.37, respectively, indicating that it is in a downtrend. Furthermore, it could continue retreating in the near term due to a supply chain crisis. So, we think the stock is best avoided now.

How Does Aterian (ATER) Stack Up Against its Peers?

While ATER has an overall POWR Rating of F, one might want to consider investing in the following Technology - Electronics stocks with an A (Strong Buy) rating: AstroNova, Inc. (ALOT), Brother Industries, Ltd. (BRTHY), and Arrow Electronics, Inc. (ARW).

ATER shares were trading at $3.89 per share on Thursday afternoon, up $0.23 (+6.28%). Year-to-date, ATER has declined -5.35%, versus a -1.61% 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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