Don’t Get Grabby with Low-Potential Grab Holdings

Stock Market

Here’s something I’ll bet you didn’t know. At one point in time, Southeast Asian ride-hailing and delivery company Grab Holdings (NASDAQ:GRAB) represented the largest ever special purpose acquisition company merger (SPAC) to date. That’s mind-blowing when we consider that many U.S. investors haven’t even heard of GRAB stock.

A photo of Grab Food Bags on the back of motorcycles

Source: Hafiz Johari / Shutterstock.com

The company is well-known in certain regions of the world, though. In fact, Grab is Southeast Asia’s largest ride-hailing and delivery company. It has operations in Singapore, Malaysia, Cambodia, Indonesia, Myanmar, Philippines, Thailand and Vietnam and serves more than 187 million users.

Yet, while Grab the company may be well-known in Southeast Asia, GRAB stock isn’t particularly popular on Wall Street. As we’ll see, it’s in imminent danger of becoming a penny stock, which can informally be defined as a stock that represents a small company and trades for less than $5 per share.

That’s a potential problem, and a deep dive into the company’s financials will paint a dark picture of a ride-hailing business with major issues. So, if you’re not yet convinced to stay on the sidelines, stick around and we’ll discover together just how much damage has already been done.

A Closer Look at GRAB Stock

Grab made its debut on the Nasdaq on Dec. 2, 2021, after the company reverse-merged with blank-check company Altimeter Growth Corp.

The stock started off near $9, and it was all downhill from there. By the end of 2021, the share price has already declined to around $7.

There was more pain ahead as GRAB stock tumbled to $5 and change on Jan. 21, 2022. To be honest, it’s too soon to establish any support levels for the stock.

Besides, support levels are established when a stock bounces off of a particular price level. When a stock just keeps falling, there’s no support to speak of.

Going forward, keep an eye on that critical $5 level. GRAB stock could easily plummet to new lows if the buyers can’t hold $5.

Big Company, Big Problems

With a market capitalization of almost $21 billion, prospective investors might assume that Grab Holdings is a surefire winner.

It’s a large company, but InvestorPlace contributor Alex Sirois pointed out some equally large problems that Grab Holdings will have to deal with.

As Sirois explained, “Widespread lockdowns in the region due to recurring waves of COVID-19 have hurt demand for Grab’s ride-hailing services and weighed on revenue despite an increase in food-delivery volumes.”

We’ll discuss the financial issues in a moment. Sirois’s concerns about Covid-19 in Southeast Asia are duly noted, though – and they’re echoed by some big-bank analysts, apparently.

Reportedly, analysts at Asian Development Bank expect that Southeast Asian economies will recover at “a much slower pace” than previously thought.

Lockdowns Weighing on Revenues

This, as you might have surmised, is due to the recurrence of Covid-19 in the region. In 2022, the Asian Development Bank analysts expect Southeast Asia to grow by only 5%, slightly lower than their previous forecast.

Clearly, Covid-19 lockdowns have been a problem for Grab Holdings and could continue to weigh on the company’s revenue and earnings.

Indeed, for 2021’s third quarter, Grab Holdings acknowledged that the company’s revenue was down 9% year-over-year “as a result of a decline in mobility due to the severe lockdowns in Vietnam.”

Turning to the bottom-line results, Grab Holdings’ third-quarter 2021 earnings loss increased $366 million, to a staggering loss of $988 million.

Hence, investors should steer clear as a nearly billion-dollar quarterly earnings loss is quite worrisome.

The Takeaway

Admittedly, Grab Holdings is a famous company in Southeast Asia. It’s a large business, as we’ve learned, with a sizable market capitalization.

Yet, this company has major problems. In particular, Covid-19 creates challenges for businesses in Southeast Asia right now.

Then, there are the financial issues. Grab Holdings is moving in the wrong direction when it comes to revenue and earnings.

It’s understandable if you want to diversify your investments into different world regions. However, not all international stocks are equally worthy of your investment capital.

So, it’s probably a good idea to avoid GRAB stock for the time being. You can always check back later to see if the company’s financial situation improves.

On the date of publication, David Moadel 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.

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