Stock Analysis & Ideas

Weber Stock (NYSE:WEBR): Good for Speculators, but That’s About It

Story Highlights

For the meme traders, bidding up Weber may be enticing because of the potential short-squeeze opportunity. However, those hoping for a fundamental thesis for why WEBR stock could mount a substantive recovery are likely going to be disappointed.

Outdoor grill specialist Weber (NYSE: WEBR) theoretically should enjoy a bounce back from the severe difficulties of the COVID-19 pandemic. With restrictions fading just as fast as fears associated with COVID-19, the return of socialization appeared encouraging for WEBR stock. Unfortunately, with the Federal Reserve changing the paradigm for the consumer economy, the company presents a far too risky profile. Therefore, I am bearish on Weber.

Graded as a “Strong Sell” among a consensus of Wall Street analysts, anybody offering a bearish take on WEBR stock isn’t exactly breaking new ground. Further, the underlying company’s fiscal third-quarter results laid bare the challenging environment management faces.

The company’s GAAP loss per share was 41 cents, and adjusted results came in at 7 cents per share loss, in line with estimates. However, in the year-ago period, Weber posted positive adjusted earnings per share of 33 cents.

On the top line, the cooking equipment specialist generated revenue of $527.94 million. The tally also missed the consensus target, in this case, by about 0.3%. In the year-ago quarter, Weber posted sales of $668.87 million. The company has only beaten revenue expectations twice in the past five quarters.

Still, as is characteristic of the post-pandemic new normal, contrarian traders began bidding up WEBR stock despite the negative earnings. According to Fintel’s Short Squeeze Leaderboard, WEBR ranks number 37 among 250 entries as one of the most shorted securities.

Nonetheless, on TipRanks, WEBR has a 1 out of 10 on the Smart Score rating. This indicates strong potential for the stock to underperform the broader market, going forward.

WEBR Stock Faces Shifting Currents

On the surface level, the idea of participating in the short-squeeze attempt in WEBR stock seems enticing. Given the success of the practice last year, it’s possible that Weber could fly above the muck. However, the difference between 2021 and 2022 stems from overarching fundamentals that investors would be wise not to ignore. Put another way, the grill maker faces shifting currents that make speculation terribly risky.

Among the biggest news items in the global markets was Federal Reserve chair Jerome Powell’s remarks at the annual economic symposium at Jackson Hole, Wyoming. According to the TipRanks Team, “Powell suggested that interest rates will likely remain higher for longer. Fed funds futures are pricing in an 85% probability that rates could be 125 to 150 basis points higher by the end of the year.”

Based on the official transcript of the policy speech, the Fed chair remarked, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

Essentially, Powell recognizes the harsh reality ahead of him. The Fed must do everything it can to tackle multi-decade highs in inflation. If the central bank fails to meet the task, inflation could wreak significant long-term damage on the economy.

Unfortunately for WEBR stock, though, the market will likely transition from a period of longstanding monetary accommodation to one of rising hawkishness. As the money supply tightens, so too will sentiment for risk-on investments like Weber.

The Cruel Irony Impacting Weber

In many ways, Weber represents the fundamental image of Americans at leisure. With backyard barbeque grills being a favorite pastime for folks across the nation, Weber caters to the rest-and-recreation crowd. The irony, though, is that resting is exactly what consumers will be doing in the months and possibly years ahead, to the detriment of WEBR stock.

Purchasing power is a key data point to consider for any company tied to the consumer economy. In 2021, the dollar lost 6% of its purchasing power. However, just in the first half of this year, the erosion of currency strength equated to 5.34%. Basically, inflation started marching double time relative to 2021 standards, thus crimping consumer sentiment.

Still, inflation can be a powerful motivator, particularly for more affluent consumers. That descriptor might be appropriate for Weber; after all, to host a backyard barbeque event implies that one has a backyard, to begin with. Essentially, because inflation erodes the dollar’s purchasing power, consumers are incentivized to make their acquisitions today rather than wait for tomorrow, when their dollars would be worth less.

However, because the Fed is now pivoting to a hawkish monetary policy, the opposite will likely be true. Consumer dollars will be worth more tomorrow than they are today. This type of environment disincentivizes spending, particularly discretionary spending. Logically, consumers would just hold off on the urge to buy their target product until later, when they will enjoy more bang for their buck.

Looking at the longer-term trajectory of Weber’s financials, though, the company needs people to spend now, not later.

Is WEBR a Good Stock to Buy?

Turning to Wall Street, WEBR stock has a Strong Sell consensus rating based on zero Buys, one Hold, and four Sell ratings. The average WEBR price target is $4.15, implying 34.3% downside potential.

Conclusion: WEBR is Only Appropriate for Gamblers

Again, while the concept of sparking a short squeeze may be enticing, WEBR stock presents too many question marks. At some point, the fundamentals will likely take over the narrative. When they do, the end result won’t be pretty.

Weber already had trouble bagging revenue during a time when wealthy consumers were incentivized to buy. Now that dollars are set to rise in value, WEBR appears vulnerable to a sharp pullback.

Disclosure

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