Investing in the stock market can be a highly rewarding pursuit. However, it also brings an oasis of risks. Some stocks possess significant financial and operational weaknesses that may lead to declines in their value. Here, the focus is on three such stocks considered for the list of stocks to sell.
Each of these companies is a leader in its respective sectors. However, it faces adversities that could undermine its long-term stability and profitability. The first company’s profitability and growth are closely tied to the highly volatile crypto market. The decline in crypto assets like Bitcoin (BTC-USD) prices and the uncertain regulatory environment impact the company’s performance.
Meanwhile, the second one is a major player in the cannabis industry, grappling with profitability issues. Lower margins in the consumer segment, high production costs and the geographic concentration of the top line have strained its financial health. Finally, the third company is a major in the electric vehicle (EV) sector. However, the company’s high production costs and inventory depletion strategies raise concerns about its long-term edge.
Coinbase Global (COIN)
Coinbase Global (NASDAQ:COIN) is a leading cryptocurrency exchange platform. For Q1 2024, the company had $1.2 billion in net income and $1 billion in adjusted EBITDA. These figures indicate strong profitability under favorable market conditions. However, the bottom-line uplifts correlate with the crypto market’s continued growth and stability.
Any considerable downturn could drastically reduce these earnings. The company had a negative performance due to declining crypto asset prices and volatility in 2022 and 2023. In 2021, crypto asset prices were at all-time highs. Further, multiple failures of crypto trading venues and lending platforms (like FTX) in 2022 magnified the negative impacts on the stock. These trends point to the sensitivity of Coinbase’s business model to external shocks.
Moreover, the increased volatility of crypto assets in Q1 benefited Coinbase at the time. However, dropping crypto assets’ prices in Q2 also points to the potential for instability that could negatively affect Coinbase’s performance. Additionally, Coinbase continues to invest heavily in driving regulatory clarity. Despite these efforts, the regulatory sphere for cryptos remains uncertain and could pose considerable risks to Coinbase’s operations and valuation growth.
Overall, Coinbase depends on the volatile crypto market, which has declining prices, making it a top pick among the top stocks to sell.
Aurora Cannabis (ACB)
Aurora Cannabis (NASDAQ:ACB) prevails in the cannabis industry. There were lower margins in the consumer segment in Q4 fiscal 2024. This suggests that the company is countering adversities and maintaining profitability. The adjusted gross margin for the consumer cannabis segment dropped, reaching 16% in Q4 fiscal 2024 from 25% in Q4 2023. The decrease in margins also indicates inefficiencies in production and supply chain. With dropping margins in a critical segment, the company’s consolidated adjusted selling and admin expenses boosted to $31.6 million in Q4 2024. These are up from $27.4 million in the previous year. Hence, this increase was due to the acquisition of MedReleaf Australia.
Moreover, the plant propagation segment experienced higher revenue in H1 2024, which may be followed by variability in revenue across quarters. Aurora’s growth strategy relies heavily on core markets such as Canada, Germany and Australia. There is a limited top-line expansion opportunity in mature markets like Canada, which may cause the company to face adversities in expanding its market share.
The company faces profitability adversities due to low margins, revenue fluctuations and geographic top-line concentration. Therefore, these elements make Aurora a top mark on the list of stocks to sell.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) focuses on EV production. In Q1, Lucid produced 1,728 vehicles and delivered 1,967 vehicles (+39.9% annually). Lucid delivered more vehicles than it produced in Q1. This points to the company’s strategic depletion of its inventory to hit delivery targets. This strategy may be sharp and beneficial in the short-term. However, it is not sustainable in the long run. Moreover, the production target of 9,000 vehicles in 2024 may not support Lucid’s growth plans and edge to seize increasing market demand. These plans reflect the introduction of new models like the Lucid Air Pure and the upcoming Gravity SUV.
Further, the overall cost structure remains high. The $137.8 million impairment charge still represents a substantial expense. Indeed, Lucid is struggling with high fixed costs related to the depreciation of factories and equipment. These costs may remain a considerable part of the cost of goods sold until production volumes increase substantially. Until then, the company may continue to face adversities in achieving profitability.
In short, despite impressive delivery growth, Lucid’s struggle with high production costs and fixed costs justifies its presence on the stocks to sell list.
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.