Is Sequential Brands Group a Good Apparel Manufacturing Stock to Buy Now?
July 6, 2021 5 min read  This story originally appeared on StockNews    Leading apparel manufacturer Sequential Brands Group (SQBG) has seen its shares slip significantly over the past three months on investor anxiety about the companys impending bankruptcy. Read on. Sequential Brands Group, Inc. (SQBG) owns and manages a diversified portfolio of consumer brands in the active and lifestyle categories. The brands under which it operates include William Rast, Heelys, Caribbean Joe, and Jessica Simpson. SQBGs stock has gained 9.4% so far this year and 38.3% over the past month. However, its share price has slumped 29.3% over the past three months. This decline can be attributed primarily to investors concerns surrounding the companys deal to sell its majority stake in the fashion line back to Jessica Simpson and other assets as part of a potential bankruptcy filing. SQBGs stock is currently trading 61.2% below its all-time high of $40.49. In addition to the apparel manufacturers anticipated bankruptcy, the lawsuits filed against the company for alleged securities law violations could make matters worse. This uncertain backdrop has the potential to drive the stock into a downtrend. Here is what we think could influence SQBGs performance in the near term:  Potential Bankruptcy Concern  In April, SQBG closed the sale of its Heelys brand for $11 million in cash to BBC International. The company plans to use the net proceeds from the sale to pay down its debt. In fact, SQBC plans to sell off its majority stake in the Jessica Simpson fashion brand back to the singer as a part of a potential Chapter 11 bankruptcy filing. It plans to use the proceeds to repay creditors, such as KKR & Co., and avoid a cash crunch. Ongoing Investigations and Lawsuits  In May, the Schall Law Firm and Gainey McKenna & Egleston filed a class action lawsuit against SQBG on behalf of its shareholders for violations of federal securities law. Bronstein, Gewirtz & Grossman, LLC and Bragar Eagel & Squire, P.C. have also filed a class action lawsuit against the company on behalf of its investors. Moreover, Scott+Scott Attorneys at Law LLP has commenced an investigation of SQBG concerning potential fiduciary duty breaches by certain directors and officers of the company. Since these lawsuits and investigations could raise investors concerns about the stocks near-term prospects, its share price could tank further. Inadequate Financials  SQBGs trailing-12-month revenues came in at $89.81 million. But the companys trailing-12-month net income was negative $89.42 million, while its trailing-12-month operating loss amounted to $45.11 million over this period. Also, its trailing-12-month net interest income came in at negative $48.25 million. The companys trailing-12-month net income margin, ROA and ROE came in at negative 99.6%, 15.8% and 125.8%, respectively. Also, its 3.7% trailing-12-month ROTC is 31.4% lower than the 5.4% industry average. Also, the companys 4.29 million trailing-12-month cash from operations is 98% lower than the 216.22 million industry average. Consensus Price Target Indicates Potential Downside  Currently trading at $15.70, the $12 consensus price target for SQBG indicates a potential decline of 23.6%. POWR Ratings Reflect Bleak Prospects  SQBG has an overall D rating, which translates to 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. SQBG has a D grade for Quality and Stability. The stocks weak profitability and volatility are reflected in these grades. SQBG has a C grade for Value. This is consistent with the companys 5.79x trailing-12-month EV/Sales ratio, which is 232.4% higher than the 1.74x industry average. In addition to the grades weve highlighted, one can check out additional SQBG ratings for Sentiment, Momentum, and Growth here. SQBG is ranked #62 of 65 stocks in the A-rated Fashion & Luxury industry. For more top-ranked stocks in this industry, click here. Bottom Line  SQBGs diverse consumer brand pipeline has helped its stock soar over the past year. However, concerns related to its anticipated bankruptcy filing and the sale of assets to meet debt obligations, as well as ongoing lawsuits and investigations against the company could cause the stock to suffer a pullback in the coming months. Furthermore, its weak profitability and financials could limit its growth prospects. As such, the stock is best avoided now. SQBG shares rose $0.80 (+5.10%) in premarket trading Tuesday. Year-to-date, SQBG has gained 14.29%, versus a 16.74% rise in the benchmark S&P 500 index during the same period. About the Author: Imon Ghosh  Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More... The postappeared first on