Amidst the tumultuous financial markets, one can’t help but cast a wary eye on troubled businesses. These firms are making headlines for all the wrong reasons, keeping investors up at night and questioning their investment decisions. Despite their best attempts at damage control, leaving a lasting impression of unease. This has led to the rise of troubled companies.
Navigating the choppy waters of investing involves steering clear of risky companies, often leaving investors high and dry. Moreover, there are those companies dreading shareholder meetings. In these meetings, a company’s executive management must face the music, answering tough questions while justifying their strategies to a skeptical audience. The tension in these boardrooms is palpable and indicative of deeper issues within the company’s core operations.
The key to smart investing is recognizing these signals and understanding their implications. With that said, let’s look at some troubled companies that are likely to burn their shareholders.
Peloton (NASDAQ:PTON) saw its business soaring in the once-booming world of at-home fitness. Its soaring triumph during the pandemic lockdown seems like a fleeting triumph, as metrics indicate a chilling downward trend across its key metrics, including subscriptions, sales, and memberships. Its era of home-bound prosperity has ended, with its share prices dropping from a staggering $150 during the peak of the pandemic, to under $8 today.
The real culprit seems to be Peloton’s business model itself. Once praised for its top-tier fitness solutions to locked-down consumers, the company has found itself struggling to retain customers in a post-pandemic world. Despite its belt-tightening measures, Peloton posted a hefty loss of $275 million this quarter alone.
It’s a startling figure that might make any investor think twice about injecting capital into the company. Given the state of its business, you’d feel for its management in addressing its shareholders in the next meeting. This makes PTON stock one of those troubled companies to avoid.
Kohl’s (NYSE:KSS), a top player in the brick-and-mortar retail realm, finds itself in a precarious position at this time. The firm’s flagging appeal, marked by lackluster value, a bland shopping experience, and burgeoning competition, heralds a gloomy outlook. First-quarter results for 2023 reaffirmed this narrative, showing a 3.3% year-on-year fall in net sales to $3.4 billion, alongside a disheartening 4.3% dip in comparable sales.
Navigating the challenging macro environment, Kohl’s prospects remain remarkably bleak. The turbulent waters of stubborn inflation and soaring interest rates are chomping away at consumer purchasing power. This erosion is particularly pertinent for Kohl’s middle-income target market. Consequently, the firm anticipates a 2% to 4% plunge in net sales for the year, albeit with a slight uptick in the operating margin to 4%.
Over the long-term, with America’s department stores in secular decline, aggravated by a dwindling middle class, the shift from offline to online shopping, and intensifying competition from big-box and online retailers, Kohl’s is in for a rough time ahead. These competitors are armed with robust competitive advantages, likely to secure lasting market share gains, leaving Kohl’s future hanging in the balance.
Lordstown Automotive (RIDE)
Lordstown Automotive (NASDAQ:RIDE) rang a somber bell announcing a 1-for-15 reverse stock split. Theoretically, this will have amplified the value of the remaining shares 15-fold, a beacon of hope for struggling companies seeking to attract investors. However, it seems to have sounded more like a funeral toll for Lordstown.
The firm’s gloomy financials paint a different story, revealing revenues of just $194,000 against a monstrous loss of more than $30 million in its most recent quarter.
Its commercial vehicles are far from industry darlings languishing in the shadow of production hiccups and lukewarm consumer response. With optimism about RIDE stock dwindling, it may be the right moment to step away from this beleaguered electric vehicle player.
On the date of publication, Muslim Farooque 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