For more than 17 months, investors have enjoyed a historic bounce-back rally in the stock market. Following the quickest decline of at least 30% in the history of the broad-based S&P 500, the index has since rallied more than…
100% off of its low.
But just because the market is in rally mode, it doesn’t mean every stock deserves its current valuation. The following five ultra-popular stocks are on the radar for all the wrong reasons, and they should be avoided like the plague in September.
As I stated last month, movie theater chain AMC Entertainment (NYSE:AMC) will be the top stock to avoid until its share price accurately reflects the ghastly performance of its underlying business and its ugly balance sheet.
There pretty much isn’t a fundamental factor working in AMC’s favor at the moment. Box office ticket sales have consistently been 30% or more below what they were in 2019, and ticket sales had been declining at a fairly steady clip since 2002. CEO Adam Aron has touted AMC’s ability to pick up market share during the pandemic, but he overlooks that the actual movie theater pie has been shrinking for two decades.
More specific to the company, it burned through close to $577 million in cash in just the first six months of 2021. It’s also sitting on $5.5 billion in corporate debt, along with $420 million in deferred rent, all of which will need to be repaid in cash. AMC’s cash balance at the end of June was a hair over $1.8 billion, or roughly $2 billion if you include the company’s untapped revolving credit line. No matter how you finagle the numbers, AMC has virtually no chance of repaying its obligations, and its bondholders know it, which is why more than $1 billion in combined 2026/2027 maturity bonds are valued at 60% to 65% of face value.
The icing on the cake here is that a multitude of theses surrounding an AMC short squeeze aren’t supported by fact. Put plainly, a company that was never worth more than $3.8 billion when it was profitable and could pay its debt obligations shouldn’t be worth $22 billion when it’s hemorrhaging cash and can’t pay its obligations.
Generally speaking, penny stocks (companies with a share price below $5) are penny stocks for a reason. In other words, companies sport a low share price because they’re not performing well from an operating standpoint. That’s the case with veterinary medicine and diagnostics company Zomedica (NYSEMKT:ZOM).
On the surface, there’s a lot to like. Pet expenditures in the U.S. haven’t declined on a year-over-year basis in more than a quarter of a century, and an estimated $32.3 billion will be spent this year in the U.S. on veterinary care and product sales, according to the American Pet Products Association. To boot, Zomedica launched its first-ever commercial product in March. Truforma, as it’s known, is a point-of-care diagnostics system for cats and dogs.
The problem is that Truforma just isn’t selling. While the company blamed its commercial launch challenges on the sale of its distribution partner, it’s still an eye-opener that the company has managed only $29,817 in total sales since its March launch. Although sales will undoubtedly grow as management works out the kinks, I have to wonder what investor wants to pay a multiple of almost 40 times estimated sales for 2022.
With no clear pathway to…
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