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Bear of the Day: Aterian (ATER)

Inflation and supply chain constraints continue to weigh on this tech stock.

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This story originally appeared on Zacks

Aterian Inc. ATER, formerly known as Mohawk Group Holdings, is a technology-enabled platform which builds, acquires, and partners with e-commerce brands by harnessing proprietary software and an agile supply chain to create consumer products.

- Zacks

Why Q2 Earnings Disappointed Wall Street

Shares plunged after Aterian reported second quarter results back in August.

Even though revenue grew 14% year-over-year to $68 million, the top line fell well below analyst expectations of $94 million. Adjusted EBITDA fell to a loss of $3.7 million versus estimates of an EBITDA gain of $3.3 million.

CEO Yaniv Sarig said that last quarter was deeply impacted by the “global supply chain crisis, inflation, and an extreme shift in consumer behavior due to the opening of brick-and-mortar stores” now that Covid-19 restrictions are relaxing.

Because of this, management declined to offer guidance for its near-term financial results.

Bottom Line

ATER is now a Zacks Rank #5 (Strong Sell).

Two analysts have cut their full year earnings outlook over the past 60 days. Aterian’s bottom line is expected to decline almost 200% year-over-year, and the consensus estimate has fallen from a loss of $2.74 to a loss of $4.47 per share for fiscal 2021. Next year’s earnings consensus has dropped as well, but Wall Street expects earnings to post double-digit growth.

Shares have been volatile so far in 2021. Year-to-date, ATER is down roughly 42% compared to the S&P 500’s gain of 16%.

Looking ahead, the company anticipates high uncertainty for its business to continue for the time being, as inflationary and rising shipping costs put pressure on its profitability goals.

Another factor weighing on the stock is a recent agreement Aterian made with lender High Trail to pay down $66.3 million in debt, but part of the deal was Aterian issuing new shares to help pay down the money it owes. This isn’t the first time the company has decided to sell new shares in order to raise capital, magnifying concerns about overall share dilution.

Even though management remains optimistic about the company’s long-term growth potential, investors may want to wait on the sidelines until the outlook improves.

Those who are interested in adding a technology services stock to their portfolio could consider Vontier Corporation VNT. VNT is a #1 (Strong Buy) on the Zacks Rank. Two analysts have raised their earnings outlook for the current fiscal year, and earnings are set to rise over 13% year-over-year.



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