Stocks, even fundamentally strong ones, can plunge for any number of reasons. The chances that fundamentally weak stocks plunge are much higher. Since the value of a company’s shares is directly tied to both its business model and performance, lacking this stability poses a significant financial risk.
Moreover, the companies discussed in this article were once surrounded by much more optimism. As market trends shift, so too has public opinion around these companies. Today, these firms exist in former growth industries that have since seen their fortunes reverse. Others represent firms that gained fame due to the emergence of memes and meme stock mania. Regardless of their origin, investors would do well to avoid these firms.
Fundamental strength should be the primary determining factor when selecting investment-worthy stocks. Bearing this in mind, the firms discussed below represent some of the riskiest stocks to avoid.
ChargePoint (CHPT)
Rewind a few years and ChargePoint (NYSE:CHPT) stock looked like it was going to be a major winner. The firm even continues to operate one of the largest charging networks in the United States. Many assumed that its strong early position would allow the company to build an unassailable lead as the electric vehicle (EV) market boomed. However, that hasn’t been the case.
The EV market continues to grow although at a stunted pace. ChargePoint, on the other hand, is contracting. Revenues declined by 24% in the fourth quarter, falling to $115.8 million. Margins concurrently fell by 3%. The combination of those two factors is overtly negative and should provide a strong enough basis for investors to avoid the stock.
The company has given guidance for positive EBITDA figures by early 2025. I strongly suspect that investors, many of whom have already been burned by EV stocks, are unwilling to move on that forecast. Furthermore, EBITDA doesn’t include the effects of interest, taxes, depreciation and amortization all of which contribute to overall net income. It’s clear that the company does not expect profitability on a net income basis by that same time. Overall, these patterns are common among stocks to avoid owning.
Beyond Meat (BYND)
Investors need only take a look at the most recent earnings report of Beyond Meat (NASDAQ:BYND) in order to understand why its stock is one to avoid.
The company lost $338.1 million in net income in 2023 as sales declined by 18%. Beyond Meat can’t even figure out how to profitably manufacture and sell its plant-based burgers. That’s evident in the $82.7 million gross loss incurred throughout 2023. The cost of sales is simply too high. That’s a particularly bad problem and compounded by the fact that product sales have also dropped.
Things aren’t getting better for the company either. During the fourth quarter, net loss reached $155 million. It continues to be crystal clear that Beyond Meat does not have a strong business overall despite being a prominent name in the plant-based meat industry. There is a certain irony given the fact that the forecast for that sector remains strong even in 2024. Beyond Meat got into the right opportunity at the right time but for a variety of other factors couldn’t make it work.
GameStop (GME)
GameStop (NYSE:GME) stock is no longer worth touching. That isn’t to say that I’ve truly ever believed that it was worth touching. I haven’t. I continue to scratch my head at its ascendance but remain firm in my conviction that it will ultimately fail.
In my opinion, a lot of people who still have faith in GME stock convince themselves that recent profitability matters. The truth is GameStop’s earnings were lower than anticipated although positive. Revenues were more than $200 million lower than analysts had been expecting. Yet, many fans of GME stock will point to the fact that the company did provide earnings. They will use that truth to substantiate an opinion that GameStop has some sort of ability to rebound.
I don’t believe that’s the case because GameStop is a relic of a dying era. The company lacks the digital strategy necessary to succeed in the current gaming environment. Game downloads rule, physical disc sales do not.
On the date of publication, Alex Sirois 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.