The end of the first quarter means another volatile earnings season. United States equities ended Q1 on a high note after an overall positive Q4 earning season. The two major U.S. stock market indices, the S&P 500 and the Nasdaq Composite, ended the first quarter up 10.2% and 9.1%, respectively. The small- to mid-cap index, the Russell 2000, trailed behind, only having risen 4.8% for the first quarter. Trading in the second quarter has been less uplifting. Macroeconomic volatility has come back into view with analysts questioning how long interest rates will remain high. Moreover, the high trading multiples that U.S. equities have risen to have led to a lot of selling pressure in Q2.
Companies that could find their share prices swinging are growth stocks. These are public companies that are expected to grow revenue and earnings significantly from period to period. If macroeconomic volatility casts doubt on the general business outlook, these three growth stocks could be landmines.
SentinelOne (S)
SentinelOne (NYSE:S) is a global provider of cloud-based cybersecurity solutions, best known for its “Singularity Extended Detection and Response Platform.” The concept utilizes artificial intelligence to power cybersecurity solutions for an organization’s cloud network.
Singularity’s value proposition was simple. AI technology would create a human-like experience for the platform’s users, thus significantly decreasing upfront costs for customers. Addressing this pain-point in cybersecurity, SentinelOne roared into prominence with a record IPO and years of consecutive triple-digit revenue growth. In 2023, SentinelOne’s share price rose more than 88%, due largely to the AI craze. While SentinelOne’s shares have had a decent run in Q1 2024, shares are down nearly 25% for the year.
The company’s Q4 earnings report is partially to blame. While financial figures did come in above Wall Street estimates, guidance for the company’s following fiscal year was sorely underwhelming. Now that we have news that Federal Reserve Chair Jerome Powell is fine with interest rates being higher for longer, we should expect a slowdown in SentinelOne’s business growth efforts.
First Solar (FSLR)
Shares of the solar panel manufacturer First Solar (NASDAQ:FSLR) increased 14% in 2023. So far, shares have risen by more than 3% in 2024. While First Solar isn’t beating the market, share price appreciation is welcome in this volatile market. Recent news, including a signed 15-year PPA guaranteeing power to a new manufacturing facility in Tamil Nadu, India and the acquisition of a distribution facility in Ohio, has probably had a role in lifting shares.
However, since the Federal Reserve may put rate cuts on hold, I think potential FSLR shareholders should avoid buying at this time. The stock currently trades at 13.2x forward earnings. If the Federal Reserve were to follow through with a Q2 rate cut, this solar company would immediately stand to benefit, given First Solar runs a capex intensive business. Still, with inflation remaining persistent, hopes for a rate cut anytime soon are fading, which could make any investment in FSLR risky.
Nio (NIO)
The electric vehicle (EV) market slump continues to overwhelm EV producers worldwide. Nio (NYSE:NIO) stock is one of the up-and-coming China-based EV startups that has been gravely affected by weaker demand in the burgeoning car market. Nio’s share price has fallen nearly 57% year to date. The Chinese EV maker has also experienced sluggish delivery growth in respect to its competitors. EV deliveries in 2023 came in at 160,038, which is only up 30% year over year. BYD (OTCMKTS:BYDDY), Nio’s key competitor in China, saw a 62% surge in full year EV deliveries.
In January, Nio delivered 10,055 vehicles, which was a 44% decrease from December. Similarly, in February, the EV maker delivered 8,132 vehicles, down 19% from January. March, fortunately, saw an uptick in deliveries. In particular, deliveries increased 46% from February. This kind of volatility in deliveries makes NIO a landmine growth stock. Is there potential? Sure! But given the slowing EV market and the interest rate environment, investors should probably steer clear of Nio shares.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.