Even as proponents of buying and holding, we feel two of these companies are doomed and one warrants careful consideration for investment
When it comes to stocks, experts say it’s good to buy and hold, but sometimes you have to face facts and abandon certain equities. Even investment guru Warren Buffett dropped his airline stocks that were in steep decline. We offer 2 stocks you should avoid outright and one that could be questionable — granted one important factor.
GoPro (NASDAQ: GPRO) manufactures action cameras that users can use to record their adventures in mountain biking, skydiving, surfing, skiing, or even scuba-diving. Although GoPro has become synonymous with action cameras, it has hit hard times which were accentuated by the pandemic. Its revenue has been in steady decline, losing over 26% since 2015, and sales are down 59% year-over-year (YoY). The stock had a spike earlier when GoPro announced crossing 500 million subscribers but these numbers also include free memberships that are given upon purchase of a camera.
The company has had a lot of competition in the sector with less expensive cameras emerging in the last few years; additionally, as mobile phones have become more durable, they have also inched their way into GoPro’s profits. GoPro failed in the drone market as well, succumbing to Chinese company DJI’s dominance in the sector — which has a near-80% market share in the U.S, only a few years after entering the field. In 2018, CEO Nicholas Woodman had his salary reduced to $1 and the company laid off 50% of its workforce and earlier this year cut it by another 20%. GoPro was a hot IPO in 2014, but today its stock price is down nearly 80% from its market debut.
AMC (NYSE: AMC) had the misfortune of being in one of the hardest-hit industries from the pandemic. Ever since it shuttered its theaters in March, the company has been bleeding cash. Upon reopening, it only had showtimes at 40% capacity and people still avoided patronizing cinemas. ‘Tenet’ was supposed to be the movie that made people show up to theaters but the film failed to do that in the U.S., selling the majority of its tickets in China instead. Additionally, many studios have delayed their tentpole releases by a year and a viable vaccine will probably take longer than first anticipated.
AMC is the largest movie theater chain in the world and holds a 32% market share. To curb losses, the company entered a deal with Universal to shorten the big-screen release window for films and collect revenue from over-the-top (OTT) streamers for said films. Also, AMC is offering theater rental for screenings to limit exposure to the coronavirus pathogen. The company has nearly $11 billion in debt and is not an attractive acquisition as a result. At the start of the outbreak, AMC furloughed roughly 98% of its workforce, including C-suite executives, and soon after cut a debt-restructuring deal that gave it $300 million in cash. This money will run out in six months and with customers avoiding theaters like the plague, it seems like the hundred-year-old company is doomed.
GameStop (NYSE: GME) is a brick-and-mortar gaming merchandise retailer and that isn’t a good thing in today’s digital age as seen by its revenue decline of over 30% since 2016, due to over 2,000 store closures. Although an argument can be made that the company is an essential business during the pandemic, authorities weren’t buying it and GameStop had to shutter its stores. That was just the icing on the cake of its struggles as it has been seeing lower game sales due to a console upgrade cycle that was approaching a decade. And although both Sony and Microsoft have new consoles due out this year, there are delays on that front as well, with pre-orders expected not to be fulfilled until next year.
Speaking of new consoles, both companies will also be releasing less expensive digital versions along with traditional models. In defense, GameStop is pivoting to the digital video game realm with a recent deal signed with Microsoft for a share of digital sales revenue for consoles sold in their stores. Further, when its stores were shuttered, the company saw a spike of over 1,500% in online sales. I feel there might still be hope for the company, but only if it significantly enhances its digital presence and closes more stores to conserve cash. From 2009 to 2017, digital video game sales grew from 20% to 83% of sales and the pandemic is sure to boost those numbers significantly. Whether this is good news or bad for GameStop depends on where it chooses to take its business.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in the companies mentioned above. Read our full disclosure policy here.