3 Overhyped Stocks That Could Be Heading Six-Feet Under
Investing in the stock market always carries a degree of risk, and even the most diligent investors can find themselves holding positions that underperform or fail to meet expectations. As time passes, the original investment thesis may no longer hold true, and the once-promising growth story can unravel and reach six feet under. With countless stocks to choose from, investors must carefully evaluate which companies provide a sufficient margin of safety and have the potential for long-term success, which has led to my list of overhyped stocks to sell.
However, not all stocks are created equal, and some may not be suitable for long-term investors. Fueled by hype and speculation rather than solid fundamentals, misguided rallies can lead to overvaluation, making certain stocks less attractive.
Additionally, if a company’s financial health deteriorates, it may be a red flag for investors to reassess their position. In such cases, investors might be better off avoiding these overhyped stocks altogether or reducing their exposure.
So here are three overhyped stocks to sell for April this year.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) has faced significant challenges, including multiple reverse stock splits to avoid delisting. In 2023, MULN reported substantial financial losses. For the quarter ending June 30, 2023, the net loss was $308.9 million, significantly higher than the previous year’s loss of $7.1 million during the same period. The full nine-month period ending June 30, 2023, saw a net loss of $792.7 million. These losses were primarily due to high non-cash expenses and significant investments in operations.
Looking forward to 2024, MULN has detailed plans to enhance its product line and increase production. The company aims to initiate deliveries of 368 Class 1 one-seaters, 11,000 Class 1 two-seaters and 3,000 Class 3 vehicles. However, it has only cash of around $88 million on its balance sheet, while its cash burn was over $226 million. It must raise capital, and some of this is apparent by its outstanding shares, rising by 6,527.73% over the last twelve months.
Given its lack of a successful track record, MULN’s fate is uncertain and risky and could be headed toward the worst-case scenario.
Nio (NIO)
Nio (NYSE:NIO), a Chinese EV maker, has been unable to meet growth expectations—the company’s reliance on price cuts to drive sales and its continued operational losses. In the first quarter of 2024, NIO delivered 30,053 vehicles, surpassing its revised target of 30,000. This was after a rebound in sales in March, where NIO delivered 11,866 vehicles. Despite this strong performance in March, NIO’s Q1 deliveries still fell short by 10% compared to the last quarter of 2023 and by 3% compared to Q1 of 2023
Furthermore, despite growing vehicle deliveries, NIO reports significant financial losses. This raises concerns about its path to profitability, especially in a highly competitive market where margins can be thin. The company’s reliance on continuous external financing, such as its significant funding from CYVN Holdings, underscores its cash burn issues.
Nothing seems to be going very well for NIO so that it could be one of those companies heading under six feet.
Canoo (GOEV)
Canoo (NASDAQ:GOEV) faces high cash burn and dilution from capital raises. In 2023, GOEV reported a significant annual net loss of $487.7 million, an increase from the previous year. This loss was evident across multiple quarters, with the fourth quarter alone contributing a net loss of $28.4 million. The company’s cash usage remains a critical issue, with $251.1 million used in operating activities in 2023 alone. GOEV’s future depends on meeting ambitious production targets and efficiently scaling operations. For 2024, the company has projected significant growth in production and revenue. However, achieving these targets could be challenging.
GOEV reached meme stock status and isn’t all that sustainable, given its consistent rate of losses and cash burn issues. I, therefore, recommend that investors steer clear of GOEV as it could be heading toward the worst-case scenario.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
