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Fears of a Higher Inflation Rate Dragged The Stock Market Indices For One More Day.
All three indices finished the day in the red, although the Nasdaq index almost made it into the green zone. The reason behind the sell-off is the familiar story we have been discussing for a while. Investors are worried about a higher inflation rate and a higher 10-year Treasury yield. Therefore the market is struggling to maintain its previous momentum.
Should You Invest in Roblox (RBLX) After Today's 20% Jump?
From the list of companies reporting their earnings on Monday, shares of Roblox (RBLX) popped more than 20%. This is a new direct listing company that allows anyone to create a video game. It's a popular platform among teenagers and just put outstanding results in its first quarterly earnings report. Revenue was up by 140% in Q1, quarter over quarter. Moreover, the company's costs across four major cost categories grew slower than the revenue, signifying that Roblox's growing scale may result in higher operational efficiency.
However, I plan to stay away from Roblox for a few more months. Not because I don't believe this is a well-run company in a growing industry. Instead, because I think the company should soon experience a slower revenue and user growth. Like most entertainment companies, Roblox benefited from kids and adults staying more hours indoors. If we've learned anything from quarterly earnings reports of social media companies we discussed yesterday, they all suffer from slower growth in the upcoming quarter. There is no reason to believe Roblox would be any different.
During the earnings report, the leadership mentioned that April's bookings are up 7% to 9% compared with March, which investors interpret as a good sign. I would rather have Roblox in my Watchlist 2021 for at least one more quarter before jumping in.
The a2 Milk (ACOPF): What to Do if The Stock You Own Has Lost Half Its Value?
I added a company to our Future of Food portfolio a while ago, called The a2 Milk (ACOPF). It's a company from New Zealand that sells baby formula mainly to China and new alternative milk that lacks Casein protein in the U.S. Alternative milk is one of those rising trends, especially in the U.S., and I invested in the stock amidst the COVID-19 pandemic assuming the company has already seen the worst. Since picking the stocks it's down another 45%. The question whether to add more or sell to cut the loss?
The company's baby formula brand in China has had a challenging year losing revenue amid tension with its Chinese reseller. This week, the company announced that its head of Asia Pacific has resigned, and it had to get rid of $90 million in out-of-date product inventory. Investors are rightfully worried that The a2 Milk has a few problematic quarters before getting back to its growing revenue.
What should other long-term investors and I do? My original hypothesis was to invest in the future of alternative milk, which is still valid. However, the company's primary revenue source is the baby formula business in China which is struggling and could impact its ability to grow its alternative milk business in the U.S. One more important data point is the current negative sentiment about the stock, as you can see on the company's Stock Card. Even if I decide to sell, it's the worst time to sell now because of the highly negative sentiment right after the recent press release.
I'm not ready to add more considering the challenges in China, but I'm not ready to sell either. I plan to hold for at least another quarter to see how the company manages to recover from the recent challenges and let the market's sentiment to calm down.
I hope sharing this update could be helpful to you if the stock you own has lost more than half its value.
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