Since the great stock market crash of 2022, company performance has been recovering, as evidenced by the record growth of the S&P 500, the peak values of the Dow Jones Industrial Average and the Nasdaq Composite. Investors were rewarded for their resilience and began to feel safe from the downturn. However, the overall market situation does not guarantee the growth of all companies, and it is worth limiting yourself to buying underperforming stocks.
Lucid Group (LCID)
Sales of electric vehicles (EVs) in the U.S. grew by 40% in Q3 2023. However, this trend fades when other details of the current state of the EV market are revealed. The previous quarter showed 49% growth, which means that the pace is slowing down. The media continues to emphasize the weakening demand for this group of goods. This creates a negative information space.
In the 2022 and 2023 models, high-voltage coolant heaters are involved in defrosting the windshield. The malfunction of these components forced the company to take unprecedented recall measures, highlighting Lucid Group’s position among underperforming stocks, as the lives and health of drivers were at risk. Although the manufacturer promises to resolve the problem after a software update, the incident serves as a big indicator of the quality control of these vehicles.
Rebuilding trust is a long process, and the highly competitive environment in the market does not give time for respite. Other electric vehicle manufacturers are just waiting for excuses to increase pressure on the company. The decline in deliveries in the fourth quarter of 2023 reflects a reputational blow to Lucid Group. Compared to the same period in 2022, there was a 12% decrease.
LCID’s price is already 95% below its historical highs. The cost of cars sold is almost three times higher than revenue, indicating flaws in the business model. Therefore, in 2024, the company’s shares may continue to fall.
Beyond Meat (BYND)
At the start of the IPO, Beyond Meat (NASDAQ:BYND) shares were close to $25. But, the days of a $3.8 billion market capitalization are over. The company managed to show sharp upsurges that could exceed 150% in 1 day and came to a share price close to $7, which is 97% lower than the peak value in 2019. After establishing a global distribution network in 2021, Beyond Meat did not make a profit. Losses grew, leading to a decline in market capitalization to $463 million.
In January 2024, BYND’s price is at its lowest point due to investors’ and insiders’ pessimistic sentiments. The company’s CFO sold more than $210,000 worth of shares before the significant drop in 2023, while 89 out of 108 insider transactions over the past year were sales transactions. Major players are trying to reduce their stake in Beyond Meat, understanding the prevailing challenges faced by underperforming stocks. As such, hedge funds’ positions decreased by 56,900 shares.
Analysts expect BYND to fall 19.45% this year. Given such reasonable expectations, only a dramatic turnaround in the market can change the situation, as the company’s viability is questionable.
As reported last November, Beyond Meat generated $75.3 million in net revenue. In 2022, this value was 8.7% higher. Thus, the company’s position is supported by the revenue trend caused by the excess of production costs over total sales. This model does not stand up to criticism, as the company’s products are almost 1.5 times more expensive than traditional meat. Significant competition in the sector may lead to an increase in Beyond Meat’s debt, which already amounts to $1.2 billion.
The Federal Aviation Administration (FAA) recently halted all domestic 737 Max 9 passenger jets and ordered a comprehensive inspection. For Boeing (NYSE:BA), this meant a 15% year-to-date decline in its share price.
The FAA’s policy was prompted by an incident on January 5, when a part of the fuselage detached during the flight of one of the company’s aircraft. Investors began to doubt that Boeing was able to maintain an adequate level of passenger safety during flights, which led to an outflow of demand for BA and emphasized the challenges faced by underperforming stocks.
The 737 Max 9 jets will not be able to fly for an indefinite period. For some, such measures may seem too drastic. However, increased control over aerospace companies is the result of several incidents. Five years ago, two Boeing 737 Max plane crashes resulted in 346 lives lost, and regulators cannot ignore this. The US National Transportation Safety Board (NTSB) has launched an investigation into the Alaska Airlines (NYSE:ALK) incident.
Over the past year, Boeing has been showing itself to be an industry leader. Growth has given way to a decline that may take several months to resolve. Stocks now carry increased risk, and the uncertainty of when flights will resume makes it difficult for investors to make informed decisions.
BA is trading at a high valuation which can negatively impact growth potential if a solution is not found soon. Of course, several investors are interested in acquiring the asset, which has declined in value. However, such a decision can be equal to playing the lottery.
On the date of publication, Julia Magas 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.