While there are always dangers associated with stock market investing, one way to lessen possible losses is to select stocks likely to underperform. Here, the focus is on the core flaws of three businesses called out for having unsettling operational and financial data. These businesses consistently face falling sales, rising overhead, and failing to reach long-term profitability. For example, the first in the list continues to be unprofitable with consistent negative adjusted EBITDA and net losses despite a considerable rise in revenue.
They have difficulty being operationally self-sufficient. Similarly, the other one deals with a concerning drop in net sales and growing costs. It highlights inefficiencies that limit their capacity to compete successfully. Likewise, the last significant fleet depreciation has resulted in negative profitability and cash flow problems, calling for a planned fleet replacement to ease financial pressure. Knowing the warning signs in these equities might give investors who want to protect their portfolios a tactical edge. Considering the trio’s financial standing and strategic choices, it is clear why selling these stocks is a sharp move.
Opendoor (OPEN)
Opendoor (NASDAQ:OPEN) is a digital real estate platform that buys and sells homes. For Q1 2024, the firm had an adjusted EBITDA loss of $50 million. This was lower than in prior quarters but still negative. This keeps up a pattern in which the business has had difficulty turning a profit on an operating basis. In Q1, adjusted EBITDA margins were -4.2%. The company’s activities are not producing a positive bottom line before interest, taxes, and depreciation, despite increased sales and attempts to control expenses.
As a result, Opendoor delivered an adjusted net loss of $80 million. However, this is better than higher losses in prior quarters (such as -$409 million in Q1 2023). However, it still emphasizes the difficulty of turning sales into bottom-line profitability. The negative adjusted EBITDA and net income suggest that Opendoor’s operations must remain financially self-sufficient. Thus, the company’s substantial borrowings and recent share sales demonstrate its dependence on debt and outside capital to support its expansion.
In short, Opendoor’s negative bottom line and reliance on external funding make the company a top pick on the stocks to sell list.
GameStop (GME)
GameStop (NYSE:GME) operates retail stores selling video games and gaming merchandise. In Q1 2024, the company’s net sales dropped with a rising selling, general, and administrative (SG&A) spending ratio relative to revenue. This represents a major structural flaw impeding the company’s ability for quick expansion. Compared to Q1 2023, which had net sales of $1.237 billion, Q1 2024 had net sales of $0.882 billion. This roughly 28.7% loss suggests that GameStop’s income generation has significantly decreased.
Further, a decrease like this indicates difficulties maintaining client demand or successfully competing in the market. Declining net sales in the context of retail operations might make it more challenging to take on new projects, increase market share, or diversify its product line. Moreover, GameStop’s growth issues are worsened by the rise of SG&A costs relative to net sales. SG&A costs reached $295.1 million in the first quarter of 2024, or 33.5% of net sales.
To sum up, these factors point to inefficiencies and difficulties in maintaining market competitiveness, making GameStop an ideal candidate for stocks to sell.
Hertz (HTZ)
Hertz (NASDAQ:HTZ) is a car rental company. The company had a solid boost in car depreciation costs in Q1 2024. More specifically, vehicle depreciation climbed by $588 million compared to last year’s. The predicted forward residual values of cars decreased, and losses on the sale of internal combustion engine (ICE) vehicles were the leading causes of this increase. EVs were a notable factor in this rise and accounted for a $119 increase in depreciation per unit when EVs were held for sale. This reflects the detrimental effect of increased vehicle depreciation.
Indeed, vehicle depreciation was a core contributor to Hertz’s $567 million quarterly negative adjusted corporate EBITDA. This indicates a margin of negative 27%. Hertz has launched a fleet renewal program to better match vehicle types with consumer demand and lower average vehicle CapEx. Over the next 18 to 24 months, this technique may reduce depreciation per unit (DPU) from present levels. Hence, the approach may bring it down to the low 300s, minimizing total depreciation charges.
To conclude, Hertz’s ongoing financial struggles and the need for a strategic fleet refresh solidify its presence among the top stocks to sell.
On the date of publication, Yiannis Zourmpanos 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.