The Nasdaq and S&P 500 had their worst days since 2022, driven by disappointing earnings from mega-cap names. Recession indicators are flashing yellow, with the “Sahm Rule” unemployment metric edging dangerously close to signaling a downturn.
Yes, the inverted yield curve has been wrong so far this time around, but that doesn’t mean we should ignore other warning signs. Corporate bond spreads are whispering “economic slowdown,” and consumer debt delinquencies are ticking up. While I still believe there are big pockets of opportunity in this market, the seven stocks I’m discussing today are not among them.
These companies’ unsustainable financials make them toxic to your portfolio, regardless of where we are in the economic cycle. Let’s take a look!
GoPro (GPRO)
GoPro (NASDAQ:GPRO) is a dying company. The age of handheld cameras and vlogs is over. Many people still use them, but I don’t see growth here anymore. Smartphones now have powerful cameras that are much more convenient for modern content creators. Vlogging has also declined in relevance, and serious vloggers use higher-end equipment. GoPro’s default aspect ratio makes the content feel dated. You can change that, but a default 4:3 ratio makes GoPro videos feel ancient in 2024.
I believe GoPro’s decline will continue as smartphone cameras improve their durability. I expect very little revenue growth in the coming years, and annual sales will likely dip below $900 million within three to four years. At this rate, debt should also surpass cash by a big margin.
Recent financials paint a bleak picture. GoPro’s revenue fell 8% to $1 billion in 2023, and sales dropped another 11% year-over-year to $155 million in the first quarter of 2024.
The company is banking on new products and subscription growth to turn things around. However, I’m skeptical that these will offset the decline in the action camera market. I’d avoid the stock.
ChargePoint (CHPT)
ChargePoint (NYSE:CHPT)operates the largest electric vehicle charging network in the U.S., but the company has been struggling lately. Shares have plummeted over 70% in the past year as revenue growth has stalled and losses continue to mount.
In its most recent quarter, ChargePoint reported an 18% year-over-year decline in revenue to $107 million. The company also posted a staggering $71.8 million net loss.
While some analysts still see big upside potential in the stock, I remain deeply skeptical. ChargePoint is burning through cash at an alarming rate and faces intensifying competition in the EV charging space. The company’s plan to focus more on its software subscription business seems like too little, too late.
Those estimates don’t scream a “Buy.”
ChargePoint is destined for bankruptcy in the coming years, barring a miraculous turnaround. The company has simply overextended itself and doesn’t have the financial wherewithal to survive the slower-than-expected rollout of EVs. Most EV startups are hemorrhaging money and won’t be viable unless we enter some fantasy world of negative interest rates.
Nikola (NKLA)
Nikola (NASDAQ:NKLA) has entered the typical EV startup death cycle of reverse splits and dilution. Last month, the company executed a 1-for-30 reverse stock split to avoid delisting from the Nasdaq. Despite this, the stock languishes around $9, a far cry from its split-adjusted highs of nearly $2,000.
Financially, the picture looks bleak. Nikola’s net loss in Q1 2024 stood at $147.7 million, and its annual loss ballooned to $966 million in 2023. Cash is dwindling, with just $345 million on hand at the end of Q1, hardly enough to sustain the company’s ambitious plans. Expect more dilutive offerings on the horizon as Nikola scrambles to stay afloat.
I believe investors should steer clear of most, if not all, EV startups right now, Nikola included. These companies are unlikely to turn a profit anytime soon, and with the political winds shifting, the generous subsidies they rely on may evaporate under a potential Trump administration. The risks far outweigh any potential rewards. Nikola looks to me like Fisker 2.0, which management is dragging out.
Terran Orbital (LLAP)
Terran Orbital (NYSE:LLAP) is a struggling satellite manufacturer that, unless drastic changes occur, is on the brink of bankruptcy. The company has signed a massive but precarious $2.4 billion deal with startup Rivada Space Networks.
Rivada has grand ambitions but is far from an established player in the space industry. Rich Smith from The Motley Fool said: “… Rivada is an alleged space company that no one seems to have heard of, and that according to data from S&P Global Market Intelligence, may have annual revenues of less than $5 million… but is somehow promising to pay Terran Orbital $2.4 billion to build it 300 satellites.”
There are serious doubts about whether Rivada can secure the funding to implement its constellation plans, which would leave Terran holding the bag.
Meanwhile, Terran is hemorrhaging cash as it scrambles to fulfill Rivada’s orders. The company reported a net loss of $53.2 million in Q1 on revenue of $27.2 million. Terran simply doesn’t have the financial runway to keep this up for long.
A recent $500 million acquisition offer from Lockheed Martin (NYSE:LMT) could have thrown Terran a lifeline, but Lockheed abruptly withdrew the bid in May, likely spooked by the Rivada situation. While Lockheed threw Terran an 18-satellite contract, that won’t help much.
Its Altman-Z score is below the 1.8 “high risk for bankruptcy” zone.
Unless Terran can diversify its business quickly, shareholders will likely be left holding a bunch of space junk.
Lanzatech (LNZA)
LanzaTech (NASDAQ:LNZA) is a carbon recycling company that transforms waste carbon into sustainable raw materials. The company recently reported disappointing Q1 2024 earnings, missing the top and bottom lines.
I want to believe in LanzaTech’s vision of a circular carbon economy, but I have severe doubts about its path to profitability. The company is hemorrhaging cash at an alarming rate, with a cash burn of $106 million over the past year. Analysts project LanzaTech won’t break even until 2026 at the earliest. Assuming everything goes perfectly according to plan is a big if.
Many of LanzaTech’s projects are located in countries with lax environmental regulations. Will these international partners follow through on their sustainability commitments? Color me skeptical. Even in the U.S. and Europe, I struggle to see how LanzaTech will turn a profit anytime soon. Analysts expect strong revenue growth in the near term but predict a sharp 26% decline in 2026. Ouch. Oh, and that loss profile isn’t expected to improve much.
The elephant in the room is the 2024 U.S. presidential election. A change in administration could spell disaster for green tech firms.
GameSquare Holdings (GAME)
I didn’t have much of an opinion about GameSquare Holdings (NASDAQ:GAME) one way or the other — until their recent acquisition of FaZe Clan. I’m questioning whether management understands how to navigate the gaming space. FaZe Clan may have been a big name a decade ago, but their relevance and influence have waned significantly in recent years. GameSquare is trying to buy buzz instead of building something sustainable.
The reality is that the gaming space outside of gambling is notoriously unprofitable, with only a few standout successes. And I just don’t see GameSquare being one of those rare winners. They seem to be chasing the “influencer” trend and esports hype but without a clear path to monetization. Selling off part of their stake in FaZe Media shortly after acquiring it is not exactly a vote of confidence, either.
Q1 2024 revenue came in at $23.5 million, down slightly from $24.1 million a year ago. Gross margins also slipped to 15.7% from 16.5%. The company is touting $18 million in expected cost synergies from the FaZe deal, but I’ll believe it when I see it. The bottom line is that I think GameSquare bit off more than they can chew with FaZe Clan. They’d be wise to cut their losses, sell the rest of that stake and refocus on something more relevant in 2024.
Beyond Meat (BYND)
I love the idea behind Beyond Meat (NASDAQ:BYND) — providing tasty meat alternatives that are better for animals and the environment. If plant-based meats can eventually match the taste and price of real meat, I think they have immense potential to transform the food industry for the better.
However, the unfortunate reality is that Beyond Meat looks nowhere close to achieving profitability anytime soon. The company reported a net loss of $54.4 million in Q1 2024 as revenue declined 18% year-over-year. Gross margins remain abysmal at under 5%. Analysts have turned extremely bearish, with firms like Goldman Sachs and TD Cowen reiterating their sell ratings and slashing price targets. Recent EBIT misses are also very concerning, so take any estimates here with a spoonful of salt.
Beyond Meat is even struggling in its backyard of California, a state you’d think would be very receptive to plant-based meats. But if they can’t make the economics work there, I’m skeptical the business model is viable on a broader scale nationally, at least not yet.
I believe plant-based meats will gain traction in the long term as companies improve taste and drive down costs. But we appear to be many years away from that inflection point. For now, I love the company but not the stock.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.