An underappreciated part of investing is knowing when to cut your losses. No one bats a thousand in this field; even the best investors make some bad picks and come up with ideas that don’t pan out from time to time.
It’s one thing to get a pick wrong. It’s quite another thing to stay wrong. Further to that, there’s no reason to be loyal to a stock just because you already own it. In fact, investors should pay special attention to make sure they don’t fall prey to sunk cost fallacy.
It’s never too late to dump a bad investment and reallocate the funds to a more promising opportunity. These are seven struggling stocks to avoid; investors should dump these companies now before things go from bad to worse.
GameStop (GME)
GameStop (NYSE:GME) was one of the most improbable stock market events of the past decade. Shares rose as much as 100-fold from the lows during its historic short squeeze. The event became so famous that a documentary was made about it. Several hedge funds lost large sums of money betting against the company, further adding to the drama.
Stripped of the magic, however, there is a little to recommend GameStop as an investment in the year 2024.
The company continues to post poor operating results. This shouldn’t be surprising as more and more of the gaming industry goes to digital rather than physical distribution means. GameStop’s other efforts such as selling collectibles and its prior cell phone venture also failed to turn around the firm’s prospects. The future looks especially bleak as game developers increasingly stop selling games on physical discs altogether.
GameStop shares have slumped in 2024 is it becomes increasingly clear that there will be no comeback for the firm’s operating business. Traders should exit their GameStop shares before they lose what’s left of the remaining value.
AMC Entertainment (AMC)
If GameStop was the original meme stock, AMC Entertainment (NYSE:AMC) was not far behind. Traders piled into AMC shares back in 2021 in hopes of turning around the struggling movie theater chain. Advocates hoped to set off what they called the mother of all short squeezes.
And credit where it’s due, a huge short squeeze did occur. AMC rose from a (split-adjusted) low of $10 up to nearly $400 at its ultimate peak. But that period has long since passed, and shares are now down 99% from the highs.
AMC leadership was not able to capitalize on the hype and interest around the company. The management team has made questionable decisions, such as investing in a gold mining company which had no apparent connection to AMC’s core movie business.
Box office attendance remains down versus pre-pandemic levels. And AMC doesn’t have much time to turn things around. AMC’s balance sheet is troubled, with the firm having a sharply negative book value per share. This indicates that the stock would be effectively worthless if the company wound down operations today.
Given its huge debt load and poor operating results, AMC seems likely to continue sinking further into penny stock territory.
Virgin Galactic (SPCE)
Back during the 2021 SPAC boom, traders were willing to give almost anything a shot. Even some frankly out of this world ideas. That includes Virgin Galactic (NYSE:SPCE).
Richard Branson’s company seeks to popularize a form of space tourism. We’re not talking about going to Mars here, but rather reaching orbit just long enough to enjoy a brief zero gravity flight experience.
In theory, there may be demand for this sort of trip although short sellers have suggested otherwise. They claim the marketing and hype went well ahead of what potential customers could reasonably expect to receive on a Virgin Galactic voyage.
In any case, years after the business has tried to reach commercial stage, things are still not up and running to a meaningful degree. The company generated just $6.8 million of revenue in 2023. Analysts actually forecast that top-line number dropping to an even lower figure in 2024 and 2025.
Without any meaningful volume of revenue-paying customers, Virgin Galactic stock seems like it’s going to get stuck on the launchpad.
fuboTV (FUBO)
fuboTV (NYSE:FUBO) is a streaming video business centered around live sports content. The idea is that a customer can subscribe to fuboTV and keep up with all their favorite sporting events in one place rather than having to deal with the hassle of various streaming subscription services.
There’s no doubt that there’s demand for product. Indeed, the company generated more than $1.3 billion of revenue last year, though competition is a concern. Rather, the big issue is that fuboTV has not found a path to profitability.
The company has to pay high prices for the licensing rights to those sporting events. It’s such a problem that fuboTV has historically struggled to even generate a positive gross margin. That is to say fuboTV ends up paying almost as much to the sports events rightsholders as it brings in from subscribers, leaving virtually no profit whatsoever even before accounting for other business expenses.
There had been hopes that fuboTV could try to find other paths to monetization such as a live sports betting application. But these efforts have largely fizzled out. fuboTV still has a nearly half a billion dollar market cap. This seems excessive given the companies large and persistent operating losses and shaky balance sheet.
Beyond Meat (BYND)
Quite a few years ago, Beyond Meat (NASDAQ:BYND) was a popular stock with traders. The company was one of the first to market with plant-based protein products. These appeared to be rapidly gaining appeal with health focused consumers.
However, the landscape has dramatically changed over the past few years. Key partnerships with fast food restaurants failed to deliver the anticipated unit growth that Beyond Meat’s investors had been banking on. In fact, plant protein products have lost so much steam that some formerly vegan restaurants are putting animal meat back on the menu.
Meanwhile Beyond Meat’s sales at grocery stores have slowed down amid rising competition. There are other plant-based food start-ups and also large package food companies such as Kellanova’s (NYSE:K) Incogmeato product line which are pressuring Beyond Meat.
Beyond Meat has struggled to generate positive gross margin on their products. This means it’s costing them nearly as much simply to manufacture their plant-based food products as they resell for. After overhead, interest, taxes, and other such expenses Beyond Meat runs massive losses.
The company has a dramatically negative book value which implies that there is very little residual value for shareholders. With revenues slumping, and the company in debt and running large losses, BYND stock seems set to leave its investors with indigestion.
Oatly (OTLY)
Oatly (NASDAQ:OTLY) is another alternative food company that finds itself in deep trouble.
The company rose the prominence thanks to its oat milk product which serves as an alternative to cow’s milk.
Investors hoped that Oatly’s partnerships with cafes and coffee shops could help give the brand a boost and drive consumer adoption more broadly. Unfortunately for Oatly, there’s little evidence that the company has been able to become a powerful consumer brand.
The truth is that it hasn’t been difficult for other producers to make their own versions or store brands of oat milk. Additionally, oat milk as a category hardly has a monopoly on the alternative dairy product space. There’s soy milk, rice milk, almond milk, and it seems new types of milk products arise almost every year.
As such, Oatly increasingly looks like a one trick pony whose trick wasn’t that compelling. The company lost more than $400 million last year and analysts expect further large losses in 2024 and 2025. Given the company’s poor balance sheet, it seems only a matter of time until Oatly runs into a liquidity squeeze.
Spirit Airlines (SAVE)
Spirit Airlines (NYSE:SAVE) is a discount airline focused on budget travelers. Instead of operating a traditional hub-and-spoke system, Spirit focuses on having a more specialized route network. It prioritizes routes which appeal to leisure travelers with ultra-low fares.
Last year a rival airline, JetBlue Airways (NASDAQ:JBLU), announced its intention to acquire Spirit. This caused SAVE shares to rally.
However, the Department of Justice eventually blocked the merger on antitrust grounds, suggesting consumers would be harmed if the airlines merged.
Unfortunately for Spirit, it finds itself in a weak position as an independent airline. The airline has been losing money, and it currently has significant capacity constraints due to engine defects that grounded a chunk of its fleet. In addition, the surging oil price will cause Spirit problems with jet fuel costs going forward.
Some traders have rallied around Spirit Airlines, led by Barstool Sports founder Dave Portnoy. These traders are hoping to turn Spirit into a meme stock.
Given the difficulties of the airline industry and Spirit’s poor competitive positioning, however, traders should seek to get off this plane before it runs into further turbulence.
On the date of publication, Ian Bezek 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.
