With corporate bankruptcy filings on the rise, you may be interested in figuring out the list of stocks at risk of bankruptcy. Interestingly enough, while hundreds of corporations have filed for bankruptcy so far this year, only a few are well-known, publicly traded companies.
Retailers Express (OTCMKTS:EXPRQ) and Joann (OTCMKTS:JOANQ) are two key examples. Yet, while the number of financially struggling publicly traded companies that ultimately file for Chapter 7 or Chapter 11 bankruptcy may be few and far between, even if these companies avoid such a fate, including their shares in your portfolio could still prove to be a costly mistake.
Why? Debt-laden, unprofitable firms typically avoid bankruptcy through capital-raising efforts. These efforts may help them avoid a game-over moment, but with this lifeline comes shareholder dilution, which can water down returns for existing investors.
Among scores of stocks at risk of bankruptcy, these seven stand out as names to avoid, as a bankruptcy filing or a maneuver to avoid bankruptcy may result in severe declines for their respective shares.
Big Lots (BIG)
Big Lots (NYSE:BIG) became an unexpected winner during the pandemic era, but the discount retailer, the post-pandemic hangover of high inflation and high interest rates has resulted in horrendous results.
For the two past fiscal years, Big Lots has reported heavy operating losses. The company’s long-term debt has also ballooned from $3.5 million to $406.3 million. This, in turn, has placed significant pressure on the price of BIG stock. Trading for prices topping $70 per share in 2021, BIG has since cratered nearly 95% to around $3.50 per share today. The retailer has made some big moves to conserve cash.
These big moves have included the suspension of its dividend, as well as aggressive cost-cutting efforts. However, analysts aren’t confident better results are just around the corner. Forecasts still call for big net losses through at least the fiscal year ending January 2026.
Beyond Meat (BYND)
Plant-based meat may have been a promising growth trend in the late 2010s and early 2020s, but few are banking on Beyond Meat (NASDAQ:BYND) being a promising bet on the future of protein consumption.
These days, BYND stock is considered to be one of the stocks at risk of bankruptcy, largely due to $1 billion in convertible debt issued during better times. That debt comes due in 2027. As BYND trades at prices well below the conversion price of this debt, Beyond Meat will undoubtedly need to redeem these notes in cash.
That may prove difficult. Beyond Meat’s sales are in decline, and cash burn remains massive. Although the company is working to buy back some or all of this debt at a discount, it’s doing so with borrowed money. Barring a sudden shift to profitability, Beyond may just be mitigating a big problem rather than eliminating it completely.
Fisker (FSRN)
Fisker (OTCMKTS:FSRN), which is automotive designer Henrik Fisker’s second electric vehicle venture, appears poised to experience the same fate as his original venture, Fisker Automotive, which went bankrupt in 2013.
In fact, you may have already thought the company declared Chapter 11. However, that has yet to happen, although everything but a bankruptcy filing has happened. Fisker has suspended vehicle production, and its Austrian unit has begun insolvency proceedings.
FSRN stock has even been delisted from the New York Stock Exchange and now trades in the over-the-counter (OTC) market. Trading for just 4 cents per share. The fact it has yet to file for bankruptcy may seem like a sign that shares could be worthwhile as a “lottery ticket” speculative trade. On the other hand, with an official filing perhaps just weeks away, such a gamble could quickly become a losing wager.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) has long been considered one of the stocks at risk of bankruptcy. As noted previously, this fledgling EV startup aggressively tapped into dilutive financing sources in order to stay in business.
However, this may no longer be a viable funding source. As MULN stock has dropped 99.5% on a split-adjusted basis over the past year, investor appetite for Mullen shares has evaporated. With this, Mullen is now implementing sweeping cost-reduction measures to conserve cash.
Unfortunately, it may not be enough to save the day. Even if the company manages to reduce cash burn by $170 million over the next year, quarterly losses could remain in the tens of millions. Mullen only had $81.5 million in cash on hand as of Dec. 31, 2023. In a few quarters, unless the company raises more capital, Chapter 11 is well within the realm of possibility.
Rent the Runway (RENT)
Rent the Runway (NASDAQ:RENT) is another company that credit analysts have argued is at risk of filing for bankruptcy in 2024. That comes even as this designer apparel rental service has already announced cost-cutting measures earlier this year.
Yes, optimism for RENT stock has been off the charts lately. As InvestorPlace’s William White reported on April 11, shares bolted 30% higher following the company’s latest earnings release. Although earnings fell short of forecasts, the market reacted to the company’s small revenue beat. Either that or a short-lived wave of “AI mania,” drove such a bullish reaction from the market.
Nevertheless, while slight improvements may be helping RENT now, that may not be the case down the road. Sell-side earnings forecasts suggest that high losses will persist. If subsequent results fail to beat these forecasts, concerns about RENT’s future viability may become top of mind once again.
Spirit Airlines (SAVE)
At the start of this year, Spirit Airlines (NYSE:SAVE) became one of the stocks at risk of bankruptcy. As you may recall, regulatory scrutiny over a proposed merger with JetBlue (NASDAQ:JBLU) resulted in a termination for what could have been a game-changing merger deal between two low-cost carriers.
The deal termination, in turn, led to severe turbulence for SAVE stock as merger arbitrageurs made an emergency exit from shares. However, not only has the sell-off continued. A crash landing remains a big risk.
Why? As I noted last month, analysts at Citi (NYSE:C) have argued that the airline is experiencing severe cash burn, has a lot of debt on its balance sheet and isn’t likely to get acquired by another airline. Set to remain unprofitable even as air travel demand remains strong, something like an unanticipated industry downturn could be the breaking point for Spirit Airlines.
SunPower (SPWR)
The risk of bankruptcy has been hanging over SunPower (NASDAQ:SPWR) for quite some time. During the second half of 2023, shares in the solar technology company cratered in price due to deteriorating fundamentals, as well as SunPower’s issuance of a going concern warning in December.
Yes, following a $175 million capital raise in February, worries about an imminent bankruptcy for SunPower have simmered down a bit. Yet, while bankruptcy worries have calmed down, a new possible red flag for SPWR stock has emerged in the past month.
I’m talking about SunPower’s April 23 announcement that it was going to restate earnings for 2022 and for the first nine months of 2023. While not certain, that may indicate even more problems lie beneath the surface with the company. Clearly, it’s a company with more than one problem on its hands. Stay away from SPWR.
On the date of publication, Thomas Niel 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.