Understanding which stocks to sell is critical for protecting the downside, especially during market volatility. Identifying companies with weak fundamentals helps avoid potential losses. Here are three such companies countering fundamental adversities.
The first company is experiencing declining gross profit and adjusted EBITDA. This is signaling operational inefficiencies and rising costs. Meanwhile, despite recent gross margin improvements, the second company needs consistent vehicle margins and cost management issues. This raises concerns about its long-term profitability. Finally, the third company is burdened by high infrastructure costs and declining gross margins. This impacts its financial stability despite cost-cutting measures.
Understanding these fundamental weaknesses allows sharp decisions on stocks to sell before the market drops. This proactive approach preserves the portfolio and positions it to capitalize on better opportunities. It ensures long-term financial growth and stability. Here, the focus is on each company’s core financial standing. With that, one can strategically exit positions that are likely to underperform. Thereby, it leads to optimizing investment strategy and minimization of risks. In summary, timely positional action on these three stocks may lead to maintaining a solid investment portfolio.
Worthington Enterprises (WOR)
Worthington Enterprises (NYSE:WOR) is a leading producer of industrial gases and metal products. It focuses on solutions for industries like automotive, construction and energy. However, recent performance indicates potential trouble. Gross profit for Q4 fiscal 2024 decreased to $79 million from $94 million in Q4 fiscal 2023. The gross margin decreased to 24.8% from 25.5%, indicating a marginal decline in profitability despite lower volumes. Adjusted EBITDA dropped considerably from $94 million in Q4 of 2023 to $63 million in Q4. With that, the trailing 12-month adjusted EBITDA margin fell to 20.1%.
Moreover, the drop in gross profit and adjusted EBITDA suggests higher costs or lower sales prices erode the bottom line. The trailing 12-month adjusted EBITDA margin points to the company’s operational edge and profitability under pressure. As Worthington’s gross profit margins narrow, adjusted EBITDA may continue to decline unless offset by rapid cost reductions and immediate efficiency improvements. Worthington Enterprises needs help managing costs and maintaining profitability amid declining sales.
These financial difficulties highlight operational inefficiencies and higher costs. Therefore, Worthington Enterprises is a candidate among the hyped stocks to sell.
Xpeng (XPEV)
Xpeng (NYSE:XPEV) is a Chinese electric vehicle (EV) manufacturer specializing in smart, connected vehicles. Despite recent improvements in gross margins, Xpeng faces considerable issues. These include vehicle margin variability and inefficiencies related to its P5 model. Xpeng’s gross margin improved to 12.9% in Q1 2024 from 6.2% in Q4 2023. However, this improvement comes after considerable losses. Further, the increase in gross margin is partly due to cost reduction and improved product mix. However, inventory provisions and losses related to the P5 model offset these gains.
Indeed, the negative impact of 3.2 percentage points on vehicle margin due to the P5 model indicates potential inefficiencies in inventory and forecasting. This could adversely affect profitability if not managed carefully. The vehicle margin for Q1 2024 was 5.5%, a solid improvement from negative 2.5% in Q1 2023. However, this margin was also subject to fluctuations, as observed about 4.1% in Q4 2023. Indeed, the inconsistencies in vehicle margins point to potential issues in cost management and product profitability. Therefore, Xpeng is on the list of the hyped stocks to sell.
Snap (SNAP)
Snap (NYSE:SNAP) operates as a multimedia messaging platform, Snapchat. The company focuses on social networking, AI and augmented reality. However, Snap counters considerable adversities due to its high infrastructure costs. In Q1 2024, the company’s total adjusted cost of revenue was $570 million, representing a 31% increase annually. While Snap has improved cloud infrastructure efficiency, the cost structure must be revised. The adjusted gross margin for Q1 2024 was 52%, down from 55% in the previous quarter and 56% a year prior. High operational costs place a considerable strain on profitability. They may hinder Snap’s fundamental ability to scale rapidly while maintaining a prolonged growth trajectory.
Additionally, Snap has implemented various cost-cutting measures, including a restructuring initiative, resulting in a 7% reduction in headcount annually. However, adjusted operating expenses in Q1 2024 amounted to $579 million, reflecting a 5% increase from the previous year. Personnel costs increased by 4% annually, driven primarily by higher costs per full-time employee despite a reduction in team size.
In short, the company has been burdened by high infrastructure costs and declining gross margins. Thus, Snap is a high pick among top hyped stocks to sell.
On the date of publication, Yiannis Zourmpanos 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.