1 High-Volume Stock with an Inevitable Short-Squeeze Coming
Shares of consultancy and consumer engagement company Troika Media Group, Inc. (TRKA) have gained 168.2% year-to-date. Last month’s mega rally in the stock was driven by significant retail investor interest, which translated into a short squeeze given that a large percentage of its shares were sold short by institutional traders.
However, TRKA’s rally ended following the company’s latest release of financial results earlier this month. Since then, the stock has been on a downtrend. Despite the possibility of another short squeeze, investors should avoid this fundamentally weak stock amid uncertain macroeconomic conditions.
In this piece, I have discussed several reasons why investing in this stock could be risky.
TRKA garnered massive investor attention in the past month. During late February and early March, the stock jumped from $0.25 to $0.99. Its popularity among retail traders primarily triggered a short-squeeze rally. As of February 28, approximately 21.47 million shares of TRKA were sold short with a combined value of $8.43 million, which is equivalent to a short interest as a percentage of the float of 11.9%.
Usually, a stock with a short interest above 10% is considered relatively high and raises the possibility of another short squeeze.
After the recent surge in TRKA’s stock price, a significant drop followed when the company released its financial results on March 7. The consumer engagement and customer acquisition group reported record revenue of $187.91 million, an increase of 1,124.7% year-over-year for six months that ended December 31, 2022.
However, the company’s operating loss and net loss widened by 155.5% and 53.3% from the year-ago value to $19.36 million and $9.58 million, respectively.
Besides providing its latest financials, TRKA reported a significant 400% increase in share count. The company’s outstanding shares stand at 344 million, up from the 64 million shares the company reported in November 2022.
The drastic increase in outstanding shares means that its key creditor, Blue Torch Finance, might have exercised its 266,666,640 warrants between December 2022 and March 2023 without filing ownership change documents with the Securities and Exchange Commission (SEC).
Here are the factors that could affect TRKA’s performance in the upcoming months:
Disappointing Financials
For the six months that ended December 31, 2022, TRKA’s total operating expenses increased 210.5% year-over-year to $45.02 million. Its operating loss widened 155.5% from the year-ago value to $19.36 million. The company’s loss from operations before income taxes worsened by 54.4% year-over-year to $9.56 million. In addition, TRKA’s net loss widened 53.3% from the prior-year period to $9.58 million.
Stretched Valuation
In terms of trailing 12-month EV/EBITDA, TRKA is currently trading at 25.50x, 161.6% higher than the industry average of 9.75x. Likewise, the stock’s trailing 12-month Price/Cash Flow multiple of 24.09 is 201.2% higher than the industry average of 8.00.
Poor Profitability
TRKA’s trailing 12-month gross profit margin of 13.66% is 72.6% lower than the industry average of 49.77%. And the stock’s trailing 12-month EBITDA margin of 1.56% is 91.3% lower than the 18.02% industry average. Also, its trailing 12-month net income margin of negative 5.10% compares to the industry average of 3.34%.
Additionally, the stock’s trailing 12-month ROCE, ROTC, and ROTA of negative 227.56%, 6.79%, and 12.34% compare to the industry averages of 2.96%, 3.57%, and 1.32%, respectively.
POWR Ratings Reflect Bleak Prospects
TRKA’s overall D rating translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated 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. TRKA has an F grade for Stability. Its 24-month beta of 1.19 justifies its Stability grade.
In addition, the stock has a grade D for Value and Quality, consistent with its higher valuation and lower profitability relative to its peers.
The stock is ranked last among 18 stocks in the Advertising industry.
Beyond what I have stated above, we have also given TRKA grades for Sentiment, Growth, and Momentum. Get all TRKA ratings here.
Bottom Line
Global consultancy and consumer engagement group TRKA reported disappointing financial results for the six months (ended December 31, 2022). Furthermore, the company’s near-term prospects look bleak as it struggles with mounting losses, declining market share, and unforeseen shareholder dilution.
The stock’s recent mega rally was primarily driven by its popularity among retail investors as a short-squeeze play. The rally faded after the company’s latest release of financial results earlier this month.
Given TRKA’s weak fundamentals and a challenging macro environment, we think this meme stock is best avoided now.
Stocks to Consider Instead of Troika Media Group, Inc. (TRKA)
The odds of TRKA outperforming in the weeks and months ahead are significantly compromised. However, there are many industry peers with impressive POWR Ratings. So, consider these three stocks rated B (Buy) from the Advertising industry instead:
Publicis Groupe S.A. (PUBGY)
Criteo S.A. (CRTO)
AdTheorent Holding Company, Inc. (ADTH)
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TRKA shares were trading at $0.29 per share on Thursday morning, down $0.01 (-2.37%). Year-to-date, TRKA has gained 150.00%, versus a 5.99% rise in the benchmark S&P 500 index during the same period.