Beware of falling for value traps! In today’s challenging market environment, some stocks may look enticingly cheap on the surface. But if you peer a little deeper, you’ll realize many of these companies are just barely staying afloat, waiting out their last days or hoping for a miracle turnaround. While many startups stand little chance of survival in the coming years, these public companies have continued to hang on by diluting their shareholders by executing constant reverse splits.
These are not businesses you should ever chase. Their charts may seem tempting at times, and a short squeeze here or there may provide some temporary excitement. But over the long-term, these companies are almost always bound to fail. Here are three stocks to never ever own, not even at much lower levels.
Mullen Automotive (MULN)
Steer clear of Mullen Automotive (NASDAQ:MULN). This EV company has been one of the most dilutive stocks in recent years. Now, Mullen has also become quite popular with investors looking to play near-term short squeezes. However, remember that the chances of making outsized gains from an occasional short squeeze are incredibly low. By the time a rare, short-lived squeeze does materialize, you will likely have lost most of your investment from constant dilution anyway.
To put the company’s dilution into perspective, Mullen’s cumulative reverse split ratio in 2023 was 1-for-22,500. That is an astounding amount of dilution. Even if Mullen were to miraculously become the next Tesla (NASDAQ:TSLA) in the coming years, you would probably be left with mere pennies per share if you buy and hold this stock long-term.
The company continues to rely on death spiral financing, while management enriches themselves through shareholder dilution. As Eddie Pan noted in a January 17th article, $820.4 million of Mullen’s expenses in 2023 were non-cash charges. These included $85.44 million in stock-based compensation and $63.98 million in goodwill impairment. Pan points out that CEO David Michery alone received $48.87 million in stock awards last year. Management does not respect shareholders, and you should avoid ever buying this stock.
Beyond Meat (BYND)
Beyond Meat’s (NASDAQ:BYND) mission is commendable, but the company seems to be ahead of its time. The company sells lab-produced meat in progressive urban centers, where more people are growing concerned about animal cruelty and the conditions animals are housed in prior to slaughter. Beyond Meat’s business model does drive respectable demand from many consumers in key markets, to be sure.
However, I do not believe lab-grown meat is commercially viable yet on a mass scale. Beyond Meat’s products cost much more than typical meat. In fact, plant-based meat can cost up to two times more. More concerning are Beyond Meat’s losses and negative margins. The company’s net margin was -210% in Q4 2023. Moreover, revenue declined 7.8% year-over-year to $74 million, while losses ballooned to $155 million.
With the stock down 56% in the past year, I foresee more dilution ahead given the company’s dwindling $190 million cash position against $1.2 billion of debt. Beyond Meat has promise, but commercial viability remains a key question mark.
Momentus (MNTS)
Momentus (NASDAQ:MNTS) operates in the capital-intensive space industry, known for loss-making companies and elusive profits. While space stocks hold potential, many simply aren’t worth investing in yet. Momentus is one such company, with its excessive cash burn.
I’m optimistic about space companies in general. But I focus on only a select few I think can reach profitability, or at least have contained cash burn rates. What’s concerning to me is I haven’t seen any space stocks with the extreme dilution and losses Momentus has shown. The company barely generates revenue and is down 98% over the past year. There is minimal Wall Street coverage, and profitability appears unlikely. That’s a combination I don’t like to see.
However, Momentus recently announced a 5-year NASA deal to provide services, receiving an initial $45 million on this deal. But I doubt $45 million will sustain Momentus for the next five years and enable smooth contract fulfillment. More dilution seems inevitable, so shareholders should avoid this stock until viable revenue starts to flow in.
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On the date of publication, Omor Ibne Ehsan 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.
