When building a stock portfolio, the most prudent strategy is typically to buy and hold shares of quality companies for the long haul. Avoiding businesses with flawed fundamentals or deteriorating financials can save you from getting stuck holding the bag on failing investments. However, I believe keeping a small portion of your portfolio for contrarian bets or speculative moonshot stocks can also prove rewarding, if done judiciously.
Of course , it’s worth noting that these companies’ battered valuations could prompt massive short squeezes at any time. Savvy traders can still generate short-term gains by playing on their volatility. But make no mistake – the long-term investment merits of these companies seem dubious at best.
Ultimately, I advocate holding primarily mainstream, institutional-quality investments. Allocating a smaller amount to moon shot bets is great, but investors will want to focus the majority of their portfolio on companies with solid leadership and finances.
So, for those looking to differentiate between the moonshot bets worth making, and the stocks I’d put in the “sell” bucket, here are three of the latter.
Ideanomics (IDEX)
There’s no sugarcoating it – the electric vehicle industry has endured a brutal year. High interest rates and recessionary fears decimated growth stock valuations, particularly those companies in the EV sector. Even innovative electric vehicle makers with promising futures have seen shares plunge dangerously close to penny stock territory. Ideanomics (NASDAQ:IDEX), a global EV solutions provider focused on fleet electrification, is one such beaten-down name facing extreme risks.
With losses mounting and cash reserves dwindling each quarter, it’s tough to justify Ideanomics as a viable long-term investment any longer. In Q3 2023 alone, the company lost a staggering $63 million on just $5.4 million of quarterly revenue. And its balance sheet now shows only around $2 million in cash remaining to fund near-term operations.
Make no mistake about it, the concept behind Ideanomics has merit. The company does have some strong tailwinds driving its valuation that could propel a move higher, if macro conditions improve. But in the current environment, raising capital is extremely difficult (and costly), making shareholder dilution seem inevitable just to keep the lights on.
AppTech Payments (APCX)
Unlike unprofitable and speculative EV stocks, leading fintech disruptors tend to operate with attractive margin profiles, even in their early stages of growth. But as a relatively unknown fintech company targeting merchants and consumers, AppTech Payments (NASDAQ:APCX) is a clear outlier. Four consecutive quarters of mounting losses and less than $1.3 million in remaining cash paint the picture of a company racing towards dilution or insolvency, absent a drastic change in fortunes.
Bulls will rightfully point out that revenues grew double digits again in Q4 and annual losses narrowed slightly on an adjusted EBITDA basis. However, with AppTech still losing substantially more money each quarter than it generates in sales, its current run rate is untenable. And for a microcap fintech company to succeed, fast growth at high margins is paramount.
Perhaps AppTech can stage an unlikely turnaround in a few years and finally achieve cash flow breakeven. But its history and Q4 results argue otherwise. I’m willing to bet AppTech won’t have sufficient time to scale further before requiring another emergency cash infusion. Cutting losses seems to be a prudent strategy, as opposed to risking a total wipeout.
Stryve Foods (SNAX)
In an environment where cash is king for small-cap companies, very few situations appear more dire right now than what we’re seeing at Stryve Foods (NASDAQ:SNAX). The emerging packaged snacks player has seen its revenues rapidly shrink from $30 million in 2022 to just $17.7 million this past year. There is little evidence Stryve can stop its cash bleed without an immediate strategic shift.
Making matters worse, Stryve’s balance sheet is saddled with nearly $24 million of highly-restrictive debt converting over the coming year which will effectively wipe out today’s shareholders altogether. The company recently reported holding only $377,000 in cash.
In short, extreme dilution seems inevitable in the near-term, for Stryve to just to keep the lights on. That is, if debt holders don’t seize control of the company entirely. I think SNAX stock will likely be rendered worthless or near-worthless sooner rather than later.
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On the date of publication, Omor Ibne Ehsan did not hold (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.