Investing in the stock market is always a gamble, and some risky stocks present an unusually high level of volatility, potentially outweighing any possible returns.
The S&P 500 and Nasdaq have reported excellent year-to-date (YTD) gains. However, this bullish outlook can mask underlying pitfalls in high-risk stocks that are unlikely to withstand turbulent markets.
Although it’s true that a short squeeze can temporarily boost these stocks, I believe this only defers the unavoidable fall. Investors need to cut through the noise and reevaluate their portfolios. In doing so, they need to ensure that their investments are built on solid long-term growth potential, not just fleeting market trends.
With this in mind, let’s examine three risky stocks in the market, evaluating the fundamental variables that contribute to their instability and why they could be better off being sold than held.
Risky Stocks: AMC Entertainment (AMC)
Heavily shorted meme stocks often get a brief burst of excitement in the rallies, but they usually lag behind stable benchmarks over time. AMC Entertainment (NYSE:AMC) is a clear example of this trend. Not long ago, the company saw a price bump in the hope of a market rebound, but it quickly faded away, dropping back to around $5 (as of now).
This volatility reveals major issues within AMC, starting with a massive $4.5 billion debt. Moreover, attendance numbers at AMC’s U.S. theaters dipped severely by 5.8% to 30.5 million, dragging total attendance down by 2.1%. It’s clear that AMC is nowhere near its pre-COVID peaks, and there is little to no chance of a rebound anytime soon.
Financially, AMC’s revenue has slipped 0.3% year-over-year (YOY) to $951 million. As if that weren’t enough, it’s bracing for a weaker second quarter, partly blaming the film release delays due to strikes.
It’s no surprise that AMC is struggling a lot, and it’s only wise to avoid it.
SolarEdge Technologies (SEDG)
Over the last few years, the solar industry has faced challenges from increasing borrowing rates, rising labor costs and regulatory developments. While some stocks thrive despite these challenges, unfortunately, SolarEdge Technologies (NASDAQ:SEDG), a solar solution provider, hasn’t been as fortunate.
The numbers speak for themselves. In Q1 of 2024, SolarEdge’s revenue plummeted 78% YOY to $204.4 million. The bottom line was even bleaker, with a GAAP net loss of $157.3 million.
Additionally, the stock nosedived after SolarEdge revealed that one of its customers, PM&M Electric, filed for Chapter 7 bankruptcy protection. The $11.4 million owed by PM&M only adds to SolarEdge’s financial problems and jeopardizes its stability.
Furthermore, SolarEdge just launched a $300 million offering of convertible senior notes. That means they’re raising funds by increasing their debt, which they’ll have to pay back with interest. Since these notes can be converted into stock shares, they may water down the value of existing shares, thus affecting the current shareholders.
Given these factors, SolarEdge is clearly a risky bet, and investors should proceed cautiously.
Virgin Galactic (SPCE)
Virgin Galactic (NYSE:SPCE) is running ahead of time by pioneering commercial space tourism, a field once considered science fiction. However, the company faces numerous challenges that question its long-term viability.
SPCE has been rocked by a double whammy in the past few months. In March, SPCE took a hit when Boeing (NYSE:BA) filed a lawsuit for trade secret theft and breach of contract amounting to $26.4 million. Then, it also underwent a humiliating 1-for-20 reverse stock split to save its NYSE listing. This action resulted in a quick drop in its stock price following the announcement.
As of Q1 2024, while having $867 million in cash reserves, SPCE does not produce positive cash flows. Without a strategy change or sales increase, these funds could vanish, risking SPCE’s existence in the high-stakes space sector.
The stock is already down 86% YTD, and the outlook indicates it will continue to decline.
On the date of publication, Nabeel Bukhari 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.