The novel coronavirus took its toll on the nation’s economy, pushing many businesses to the brink of collapse. Bankruptcy stocks saw a lot of movement during the fiscal year with a 52% percent increase in the number of companies filing for Chapter 11.
From retailers to restaurants, many prominent businesses were forced to file for bankruptcy after Covid-19-induced losses in a zero-revenue environment. However, experts believe the worst is yet to come as more companies head down this winding road.
This consensus is based on many early indicators, such as increasing net losses and poor liquidity balances reported this earnings season. Although Congress is still in talks over aid, the government stimulus has not been sufficient for businesses to weather the storm.
As the economic downturn continues, here are three bankruptcy stocks that are headed toward a Chapter 11 filing.
Bankruptcy Stocks: GameStop:(GME)
GameStop, the video game retailer, is heading into its final days with a potential bankruptcy in its future. While the pandemic was not the cause of the company’s demise, it did come as the final straw for its already weak balance sheet.
GameStop was once the market darling of the video gaming sector but soon lost its allure to tech giants like Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE). The company traditionally sold packaged software and found itself unable to keep up with the digital downloadable games trend.
GameStop’s inability to keep up with this digital-first environment was reflected in the company’s financials. The company’s stock is said to have lost nearly 90% of its value in the past five years. GameStop reported a $100 million net loss for the second quarter.
The company hopes new consoles by Sony and Microsoft may create some demand for its video games. But many believe that it remains an unlikely scenario as people buy the games and consoles as a bundle.
GameStop executives are faced with an increasing sense of urgency as sales continue to remain low. The retailer will need to pivot its business model if it hopes to remain relevant in the competitive world of gaming.
High-end retail stores were among the worst-hit segments during the pandemic as its physical locations remained shut for months on end. Companies like Nordstrom saw a huge dip in sales as purchases of non-essential items at the start of the pandemic was close to nil.
Although online sales rose in the following months, it was not enough to keep the business afloat with zero in-store sales. The slow activity eventually took its toll on the famous department store.
With salary cuts of 50% and an increasing number of furloughed employees, Nordstrom’s glory days are well behind it. The company’s stock price was also trending at a historic low of $14 in early August.
Nordstrom was optimistic that a decrease in Covid-19 cases would eventually restore sales. However, with continued cases and the reversal of reopenings, this seems like a distant dream.
With that being said, Nordstrom does have a liquidity position with $1.4 billion in cash which should be sufficient to tide it over in the coming months. The company can use its digital sales as its major revenue driver. But if it is unable to successfully pivot, Nordstrom may join retail bankruptcy stocks like Neiman Marcus and JC Penney (NYSE:JCP).
Land’s Ending (LE)
Clothing retailer Land’s End is one of the many brands that caught the losing end of the corona-economy. The once high-profile business hit a series of financial issues as it stands on its last leg.
When the company reported earnings in June, revenue fell by 17.3% while net losses increased to $20.6 million. However, revenue was up 11.1% and the company hoped to keep this value up. It expected to reopen all its stores by the end of June.
Unfortunately, Land’s End saw a sharp dip in sales in the following months. This led analysts to downgrade the company’s stock to junk status and give its liquidity position a low grade.
The company also reported it will not remain in operation unless it refinances a $384.1 million loan that matures in April.
The dim liquidity position also made it harder for the company to obtain a loan from other financiers. Edward Lampert, chairman of Land End’s parent company, Sears Holding Corp, said future prospects are remain bleak if it is not able to generate cash.
Land End’s financials are not promising at the moment and the company may be next in a long line of potential bankruptcy stocks.
Divya Premkumar has a finance degree from the University of Houston, Texas. She is a financial writer and analyst who has written stories on various financial topics from investing to personal finance. Divya has been writing for InvestorPlace since 2020. As of this writing, Divya Premkumar did not own any of the aforementioned stocks.