Sonder Holdings Inc. (SOND) in San Francisco, offers a wide range of lodging solutions–from large rooms to fully furnished suites and apartments–in 35+ markets across 10 countries and three continents. It had roughly 7,600 live units throughout 38 markets and 10 countries as of Dec. 31, 2021, and approximately 10,500 more contractual units.

Its live units grew 54% year-over-year to 7.7k in the first quarter, ended March 31, 2022. Also, the company reported RevPAR of $117 million, representing an increase of 52%. Its occupancy rate increased 700bps to 73%.

However, SOND’s shares are down 77.2% in price over the past year and 49.9% over the past month to close yesterday's trading session at $2.25. The company stated that despite significant year-over-year growth, supply chain interruptions and labor shortages slowed its Live Unit growth in Q1, and several property openings slated for early this year have been pushed back to subsequent quarters.

Here is what could shape SOND's performance in the near term:

Inadequate Financials

SOND's revenue increased 154.9% year-over-year to $80.47 million for the first quarter, ended March 31, 2022. However, its total cost and expenses grew 71.8% from the year-ago value to $176.23 million. And its operating loss increased 34.8% from its year-ago value to $95.76 million. In addition, its net cash used in operating activities came in at $53.36 million, representing a 32.4% increase for the quarter ended March 31, 2022.

Poor Profitability

SOND's 0.29% trailing-12-month asset turnover ratio  is 71.9% lower than the 1.05% industry average. Also, its trailing-12-month ROA, gross profit margin, and ROC are negative 11.9%, 42.5%, and 20.7%, respectively.

POWR Ratings Reflect Bleak Outlook

SOND has an overall D rating, which equates to a Sell in our proprietary 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. SOND has an F grade for Growth. This is justified given the company's poor fundamental growth.

Among the 22 stocks in the C-rated Travel – Hotels/Resorts industry, SOND is ranked #19.

Beyond what I have stated above, one can view SOND ratings for Stability, Value, Momentum, and Sentiment here.

Bottom Line

While growing demand for travel and leisure services should benefit the company, various macroeconomic challenges, most notably rising inflation and labor shortages, could stymie its growth in the near term. Also, analysts expect its EPS to remain negative in the current year and next year. In addition, the stock is currently trading below its 50-day and 200-day moving average of $3.70 and $7.75, respectively, indicating a downtrend. So, we think the stock is best avoided now.

How Does Sonder Holdings Inc. (SOND) Stack Up Against its Peers?

While SOND has an overall D rating, one might want to consider its industry peers, Bluegreen Vacation Holding Corp. (BVH), which has an overall A (Strong Buy) rating and Playa Hotels & Resorts N.V. (PLYA), and Target Hospitality Corp. (TH) which have an overall B (Buy) rating.

Note that TH is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

SOND shares were trading at $2.30 per share on Wednesday morning, up $0.05 (+2.22%). Year-to-date, SOND has declined -76.93%, versus a -12.25% rise in the benchmark S&P 500 index during the same period.

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.

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