New York City-based technology-enabled consumer products platform provider Aterian, Inc. (ATER) is known for its commerce operating system—AIMEE. On August 30, the company launched its Shareholder Perks Program. The stock has gained 345.1% in price over the past month to close yesterday’s trading session at $17.98, due mainly to the social media hype surrounding it.

The stock has declined 47.1% over the past six months, however., and several law firms are conducting investigations into ATER regarding potential security law violations. Moreover, the company has not provided guidance for the year because its near-term prospects are difficult to predict due to the global supply chain crisis, the impact of the COVID-19 pandemic, and a shift in consumer behavior.

Here’s what could shape ATER’s performance in the near term:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the second quarter, ended June 30, 2021, ATER’s net revenue increased 14% year-over-year to $68.19 million. In addition, the company’s gross profit increased 18.6% year-over-year to $32.74 million. However, its net loss came was  $36.31 million, representing a 1,136.2% year-over-year rise. Its loss per share increased 547.4% year-over-year to $1.23. Also, its adjusted EBITDA came in at a loss of $3.74 million, versus a $3.39 million gain in the year-ago period.

Ongoing Investigation

On  May 5, ATER claimed that research analysis by Culper Research on the company is misleading and “is an attempt by a short seller to negatively impact and manipulate Aterian’s share price solely for its own benefit.” Nevertheless, several law firms have launched investigations into  ATER on potential violations of federal securities laws.  It is alleged that ATER made misleading statements or failed to disclose that its organic growth is declining, and that it uses rebate programs to pump up its product offerings.

Caught Up in Meme Frenzy

Even though several investors are scrutinizing ATER’s business practices, the stock has been gaining over the past few months due to  Redditors’ interest in it. The stock has soared 430.5% in price since hitting its 52-week low of $3.04 on August 23, 2021. In addition, shares have a short float of 27.6%. However, the price surge is unlikely to be sustained  due to ATER’s  weak fundamentals. Wall Street analysts expect the stock to hit $7.88 in the near term, which indicates a potential 56.2% decline .

POWR Ratings Reflect Bleak Outlook

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

Our proprietary rating system also evaluates each stock based on eight different categories. ATER has an F grade for Value, which is consistent with its1.81x and 1.72x respective forward EV/S and P/S, which are  higher than the 1.49x and 1.23x industry averages.

The stock has an F grade for Growth, in sync with analysts’ expectation that its EPS will decline 1,000% in the current quarter, ending September 31, 2021, and 242.7% in its fiscal year 2021. ATER has an F grade for Stability also, which is  consistent with its 4.12  beta.

Furthermore,  ATER has an F grade for Quality. This is justified given its negative values for trailing-12-month ROCE, ROTC, and ROTA compared to the 17.66%, 7.37%, and 6.26% respective industry averages. Beyond what we’ve stated above, we have also given ATER grades for Momentum and Sentiment. Get all the ATER ratings here.

Also, ATER is ranked #44 of 45 stocks in the B-rated Technology – Electronics industry.

Bottom Line

Even though ATER has aimed to capitalize on the growing e-commerce industry, the company has run into several controversies, and  analysts expect its EPS to remain negative in the current year and next year. So, we think the stock is best avoided now.

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

ATER has an overall POWR Rating of F, which equates to a Strong Sell Rating. Therefore, one  might want to consider looking at its industry peers AstroNova, Inc. (ALOT), Universal Electronics Inc. (UEIC), and Brother Industries, Ltd. (BRTHY), which have  A (Strong Buy) ratings.

ATER shares fell $0.95 (-5.28%) in premarket trading Tuesday. Year-to-date, ATER has gained 4.47%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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