Although commitment through astounding odds stirs the soul, when it comes to stocks that are screaming sells, investors must consider the stone-cold fundamentals. To be clear, this list isn’t about bashing particular securities for the heck of it. Nor do I have anything to gain or lose regarding these companies’ market trajectory. Rather, I’m merely presenting to you major red flags.
Whether through questionable decisions or falling victim to circumstances outside their control, certain embattled organizations face viability concerns. Given the potentially choppy waters ahead, it’s better for retail investors to sit on the sidelines when it comes to stocks that are screaming sells.
Remember, it’s your money and you worked hard for it. Let these companies figure things out and then possibly reengage when circumstances dictate. For now, though, these are the screaming sells to avoid.
Beyond Meat (BYND)
When it comes to screaming sells, I regrettably must place plant-based food company Beyond Meat (NASDAQ:BYND) on this list. Initially a non-believer, I tried its products and was left impressed at their quality. Unfortunately, BYND stock won’t rise based on people’s opinions but rather the fundamentals of the business. It’s here that the enterprise lacks.
Essentially, the pricing of plant-based meat runs higher than their animal-protein counterparts. The reason why centers on economies of scale. Because companies produce “fake” meat on a much smaller scale than agricultural powerhouse do with their real products, Beyond Meat just doesn’t have the ammunition to fight competitively.
As well, the gross margin metric provides the tale of the tape. Generally speaking, a high gross margin implies greater flexibility regarding economies of scale. However, Beyond Meat’s gross margin currently sits in negative territory. Combine this fact with negative operating and profit margins and you’re looking at one of the screaming sells heading into 2023.
Back when people sheltered in place because of the coronavirus pandemic, Carvana (NYSE:CVNA) – which specialize in online used-car retail solutions – offered immense relevance. After all, during the height of the crisis, few folks wanted to take public transportation. This was especially a problem in the east coast, where people rely on such networks for mobility.
Enter Carvana. By providing personal vehicles via a relatively contactless platform, CVNA enjoyed immense relevance. Indeed, it wasn’t that long ago that on an average basis, CVNA traded hands for well over $300. At one point, it appeared that it could cross over into the $400 threshold. However, Covid-19 fears eventually faded. And that spelled doom for a company offering contactless solutions.
Currently, Gurufocus.com labels CVNA as a possible value trap. In blunter language, it’s one of the screaming sells to avoid. Again, the problem comes down to gross margins, which for Carvana are weak for the industry. Combined with negative operating and net margins, management will need time to sort through the troubles.
Probably one of the few companies that will generate intense debate, some folks will not see Redfin (NASDAQ:RDFN) as one of the screaming sells. That’s fine. I’m completely open to different points of view. As I said earlier, I own no position where the trajectory of RDFN will impact me.
Still, we must recognize a general truth. You can have higher rates or higher home prices. However, you (typically) can’t have both at the same time. With the Federal Reserve committed to tackling inflation through raising the benchmark interest rate, circumstances don’t bode well for RDFN.
Moreover, you can see the pain impacting Redfin’s financials. According to Gurufocus.com, the investment resource identified nine red flags for the enterprise. Among them, long-term debt and the company’s continued issuance of debt poses major concerns.
Frankly, if your business was doing well, you presumably wouldn’t borrow money – especially during a cycle of rising rates. Therefore, RDFN rates as one of the screaming sells until shifting fundamentals suggest otherwise.
Since its introduction as a publicly traded company, Chinese electric vehicle manufacturer Nio (NYSE:NIO) attracted early attention. However, shares gradually fell to low-single digits as investors didn’t see the viability of China-based vehicle company. After all, Chinese automobiles held a poor reputation for quality.
Largely, though, this assessment centered on the nation’s combustion-powered vehicles. When it came to EVs – which inherently feature fewer moving parts than their combustion-based counterparts – China seemed to excel. Not only that, Nio kept firing on all cylinders (metaphorically speaking). When the Covid-19 crisis struck, NIO stock went on a blistering run to the moon.
Unfortunately, harsh macroeconomic realities are setting in. For example, in the U.S., the high cost of EVs kept many would-be consumers in the sidelines. This circumstance may align with the Chinese consumers’ experience. Moreover, the ongoing protests against Beijing’s zero-Covid policy imposes an economic cost. If that wasn’t enough, Gurufocus.com warns NIO represents a possible value trap. It’s probably one of the screaming sells to avoid.
While social network Pinterest (NYSE:PINS), which focuses on sharing interests with friends and colleagues, may have been intriguing during a decisively strong economic cycle, under one fraught with risks, PINS poses major concerns. That’s because when the economy is poor, the mood likewise sours. Unfortunately, Pinterest depends on an uplifting sentiment for its product offering to make sense.
In an article for Barchart.com, I juxtaposed the company’s monthly active users (MAUs) with the purchasing power of the dollar. You can read my analysis here but the point of the write-up was that “dramatically eroding purchasing power (or rising inflation) corresponded with lower engagement rates at Pinterest.”
This makes sense as a loss of purchasing power forces consumers to avoid discretionary spending and instead to focus on the essentials. To be fair, the Fed’s hawkish policy should eventually bring down inflation to reasonable levels. However, this action will likely lead to extensive job losses. Therefore, macro headwinds imply that PINS is one of the screaming sells to avoid for now.
A dating and social networking platform, Bumble (NASDAQ:BMBL) generated plenty of attention when it made its public market debut in early 2021. For one thing, CEO Whitney Wolfe Herd shook up the male-dominated tech sector. As well, the chief exec made it a point to ensure equity in relationships. Therefore, women make the first move on Bumble.
Fundamentally, there’s nothing wrong with that. However, women have no choice but to make the first move on Bumble (assuming traditionally oriented pairings). To be honest, I see this decision as ideology unfavorably mixing with business directives. For instance, while some women may appreciate the “equity,” other women might prefer age-old traditions. Further, this strict policy may dissuade men to join Bumble.
The harsh reality is that this segment features much competition. On the positive front, Bumble does enjoy a strong gross margin of over 72%. However, the strict adherence to relational equity prevents actualizing potentially greater economies of scale. Thus, BMBL rates as one of the screaming sells.
Marathon Digital (MARA)
While the inclusion of Marathon Digital (NASDAQ:MARA) on this list of screaming sells will likely attract controversy, I gotta tell you something: I don’t care. When I write on the topic of stocks to avoid, my first and only priority is to warn investors. If the public believes that the risks are unwarranted, so be it. However, with MARA, market participants must exercise extreme vigilance.
To be sure, the bearishness in Marathon really doesn’t focus on the company itself. Rather, the underlying industry imposes too many headwinds. In another analysis for Barchart.com, I demonstrated the existence of a possible direct correlation between the money stock and the price of the benchmark cryptocurrency. In other words, as inflationary pressure builds, cryptos likewise rise. When inflation decreases (because of deflationary forces), cryptos tumble.
Of course, Marathon’s crypto-mining business requires excitement and engagement for the sector. Without it, MARA becomes far less relevant. Therefore, it’s one of the screaming sells to avoid until circumstances improve.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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