In the dynamic world of investing, it’s imperative to consider penny stocks to avoid . Investors frequently fall into the trap of equating low prices with low valuation or high upside potential.
However, this equation might not hold water in the current market climate, with an alarming number of overvalued penny stocks with dubious upside potential.
AMC Entertainment (AMC)
As the movie theater industry struggles to stage a post-Covid recovery, AMC Entertainment’s (NYSE:AMC) future is apparently teetering on the edge of decline.
Moreover, with the meme mania subsiding, AMC stock is effectively reverting to prices reflecting its underlying value.
It seems more than likely that the stock could fall below the $1 per share mark due to its ailing fundamentals and shareholder dilution. Despite a resurgence of hit films in the post-pandemic era, the bottom line for operators like AMC isn’t improving at a pace fast enough to inspire confidence among investors.
Margins are firmly in the red and will continue dwindling for the foreseeable future. Not even the stream of hit films this year has been enough to bolster box office numbers over those of 2022 significantly.
Hence, as we move forward, the outlook for AMC makes it one of the prime penny stocks to avoid.
From the glitz of hot stock to the gloom of a failed growth story, Skillz (NYSE:SKLZ) has witnessed a dramatic shift in its fortunes over the past few years.
Its stock has nosedived more than 60% in the past year, positioning it as one of the top penny stocks to leave out from your portfolios.
Back in August, red flags were raised about the company’s shift in business strategy. It abandoned its heavy spending on customer acquisition, opting instead to generate more revenue from its existing user base.
Regrettably, this new approach has resulted in a shocking decline of more than 42.8%, on a year-over-year basis, with forward growth estimates at a negative 21%.
On top of that, its net income and EBITDA margins on a trailing twelve-month basis are at a negative 48% and 146%, respectively, offering little upside ahead for its investors.
Express (NYSE:EXPR) is another sorry penny stock to sell, a clothing retailer targeting a young demographic.
Its mall-centric approach, once a strategy for success, has morphed into a liability in today’s retail landscape, making it one of the penny stocks to avoid.
This decline was evident even before the pandemic, with reports of its stores resembling “ghost towns” in early 2020.
Moreover, as we advance, the company struggles to reinvent itself in this rapidly evolving retail environment. Over the past five years, revenue expansion has been incredibly sluggish, with just 0.22% top-line growth.
Also, its EBITDA and free cash flow margins are at a negative 3.6% and 6.4%, respectively. In terms of momentum, the stock has lost almost 100% of its value in the past decade, offering little to no value for long-term investors.
Mullen Automotive (MULN)
Navigating the electric vehicle (EV) landscape, Mullen Automotive (NASDAQ:MULN) has unfortunately hit a string of roadblocks.
Delays in procuring fresh financing, cash burn issues, and the lack of retail trader enthusiasm surrounding the stock have taken on its growth trajectory.
It’s far from being a smooth journey for what its investors might have initially anticipated. After all, what makes this one of the penny stocks to avoid is that it has almost the entirety of its value and could perhaps go to zero.
Mullen remains a pre-revenue business, with its financial reports offering no clear timeline for anticipated sales, giving its investors ample reason for caution.
A precipitous drop in levered free cash flow from a substantial $37.2 million in September 2022 to a concerning negative $70.4 million further underscores the challenges facing MULN. Hence, those still on the fence should steer clear of MULN stock now.
Newegg Commerce (NEGG)
Newegg Commerce (NASDAQ:NEGG) is a prominent e-retailer of electronics products in North America that is currently traversing a rough patch.
Once admired for its diverse offerings in computers and accessories, the company saw its bottom-line numbers sink into the red in 2022, with further losses anticipated for 2023.
Despite attempts to showcase its artificial intelligence capabilities, Newegg’s worrying fundamental and lackluster prospects offer little for investors over the long run.
Moreover, its full-year performance last year paints a relatively disheartening picture, marked by a massive 27.7% plunge in sales and an alarming retreat below its fiscal 2018 levels. Its marketplace offerings, once a magnet for its loyal customer base, are now causing dismay and defection, with no clear pathway toward margin expansion in sight.
Additionally, its management has attributed its lackluster performance to the overall economic slowdown and overexposure to consumer electronics, which is a major concern given the potential for declining disposable income to curb spending on electronics.
With these issues likely to persist for a relatively long time, it’s best to avoid NEGG stock at this time.
Exela Technologies (XELA)
Exela Technologies (NASDAQ:XELA), an outsourcing firm, managed to steer clear of penny stock territory following a 1-for-200 reverse stock split last month.
However, that doesn’t alter the fundamentals of XELA stock, which remain far from promising now, definitely making it one of the more dangerous penny stocks to avoid.
The company is being squeezed by inflation, forcing it into a cost-cutting frenzy to push its bottom line into the green. The situation is further complicated by a staggering $1.1 billion debt on its balance sheet, which could overshadow the firm’s true value.
In an attempt to lighten this load, Exela announced a debt exchange offer, swapping existing notes for new ones at 80 cents on the dollar.
Yet, even if this move is fully executed, there’s a major possibility that its outstanding debt could still exceed the company’s inherent worth. Given these circumstances, Exela might be bracing for a bigger downward spiral.
Lordstown Motors (RIDE)
Lordstown Motors’s (NASDAQ:RIDE) ambitious goal to essentially revolutionize commercial fleets through electrification has been more of a cautionary tale than a success story.
Its journey has been remarkably rocky, marred by cash burn and shareholder dilution. It recently announced a 1-for-15 reverse stock split to boost the stock price. To put things in perspective, the stock has shed more than 88% of its value in the past year.
Moreover, its Endurance electric truck has undergone multiple production hiccups, having notched up a hattrick of recalls in March this year.
To add insult to injury, RIDE’s operational losses are on the rise, with a staggering 91% drop in profits in the first quarter compared to last year.
Moreover, the plot thickens with a brewing standoff between Lordstown and Foxconn, threatening the company’s survival. As Foxconn’s promised investment remains in limbo, Lordstown is staring down the possibility of losing a critical funding source which could spell the end for the firm. This is one of the no-brainer penny stocks to avoid for sure.
On the date of publication, Muslim Farooque did not have (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