Growth stocks certainly have legs at the moment and it’s fair to assume that there will be a surge of investment heading into 2024. Demand should be expected to rise as the Federal Reserve continues to signal that the worst is over. The markets are expecting a soft landing and multiple rate cuts in 2024.
The cost of lending is going to decline and therefore growth will again be en vogue. Investors should take this as a very positive sign and there is reason for optimism. However, that doesn’t mean that all growth stocks should receive a green light at the moment. Investors still should continue to avoid weaker firms, even with reasonable growth outlooks.
Lucid (LCID)
It’s very easy to pick on EV stocks like Lucid (NASDAQ:LCID) at the moment. For months, investors have been very well aware of the issues facing the sector, including a buildup of inventory.
Lots of headlines have focused on the fact that prices are in decline and that the industry is facing a period of difficulty in general.
The same articles are quick to point out the fact that current issues do not constitute an existential crisis for the EV sector. It’s also very clear that many of the prominent upstart firms in the space like Lucid should be avoided.
It’s very clear from the company’s most recent earnings report that the company simply has too much trouble. Sales declined during the third quarter by over 29%, falling to $137.81 million. Operational losses for the first nine months exceeded 2.3 billion, up from an already high $1.84 billion a year earlier. My assumption is that Lucid’s slowing growth and substantial losses will cause lower demand overall at least for the near term.
Upstart Holdings (UPST)
Upstart Holdings (NASDAQ:UPST) doesn’t appeal to me based both on its fundamentals and its business model. The stock is one in line of many lending businesses that continue to promise to leverage AI for improving lending. However, many that follow the firm, myself included, believe that the business model doesn’t work.
It’s easy to get swept up in enthusiasm around Upstart Holdings. 2023 has been the year of AI and valuations have absolutely skyrocketed. firms including Upstart Holdings have been swept up in that enthusiasm and their prices have become unnecessarily high.
Investors need look no farther than the company’s most recent financial information in order to see there are real problems. Revenues fell by 14% in the third quarter while fee revenue fell by 18%.
Investors need to ask themselves if developed the application of AI to the credit markets. My belief is that it is not given the fiascos related to iLending firms recently. Upstart Holdings’ weak business model serves only to reinforce that belief.
Doordash (DASH)
Doordash (NASDAQ:DASH) stock deserves of credit for progress that it has made. Delivery volume grew rapidly throughout the pandemic and Doordash was one of the biggest beneficiaries.
It used that surge to make some legitimate improvements leading to a 75% decline in losses in Q3.
However, the same success that propelled its share price much higher in 2023, has now become a problem. The company’s forward PE ratio is very high relative to its competition. This phenomenon often happens with leading firms across every industry and sector. Here, it’s something to pay attention to.
Beyond that, the Doordash and all of its competitors will soon be required to pay higher minimum wages in New York. That will obviously eat into the company’s results, making it more difficult for the company to continue to chip away at its losses. If the industry faces higher wages in other states that will only compound problems overall.
C3.ai (AI)
C3.ai (NYSE:AI) continues to have trouble after its most recent earnings disappointed. The story of its stock has been one of volatility throughout 2023.
The company emerged as one of the biggest beneficiaries of the AI boom early in the year. Share prices went from $10 to $44 by early August.
Since then, they’ve fallen back to $30. Investors should expect them to fall further after the most recent earnings report. The company reported 73.2 million dollars in revenues, representing 17% growth, at the lower end of guidance.
The market is going to continue to perceive this as real trouble for the firm. The results reiterate calls from the company months ago that profitability in fiscal year 2024 is unlikely.
The company is doing little to quell investor concern at this point. it is referring to wishy-washy metrics including customer engagement. The firm readily admits that it isn’t an accurate indication of market acceptance of its products.
Coinbase (COIN)
Cathie Wood just reduced her fund’s position in Coinbase (NASDAQ:COIN) and its stock.
Her fund has sold roughly $150 million worth of the stock this month. The selloff hasn’t had a detrimental effect on share prices yet.
It will continue to hang around as a potential negative sign in the back of investors minds, no doubt. Wood owns 8% of the company’s shares at present and so her fund holds considerable influence overall. Her firm has shifted its focus to genomics as Multiple CRISPR firms recently received FDA approval.
Equally important, the price of Bitcoin (BTC-USD) continues to show signs of weakening slightly. Any continued volatility there will muddle the outlook for Coinbase which relies on fee revenues related to trading of leading cryptocurrencies, including Bitcoin.
Add to that the fact that Coinbase’s revenues fell by double digits in the most recent quarter and there’s lots of room for pessimism.
Rivian (RIVN)
It’s easy to see why Rivian (NASDAQ:RIVN) continues to be a stock that investors should avoid at the moment. The overall EV environment simply isn’t strong.
The technology adoption bell curve reached a period which is known as ‘the chasm’ earlier this year.
The transition away from the early adoption phase has hurt Rivian and the EV sector at large. Broader macroeconomic pressure has resulted in issues that are reflected on the company’s balance sheets and financial statements.
The company ended 2021 with more than $18 billion dollars in cash reserves. By the end of the third quarter and 2023, that figure had fallen to $7.9 billion. The company also reduced its capital expenditures to a $1.1 billion guidance level for fiscal year 2023. The company is in a period of fiscal conservatism that is at odds with growth and waning cash reserves. That puts the company in a difficult spot that makes it one to avoid at present.
Paycom (PAYC)
Paycom (NYSE:PAYC) has seen its share price decline substantially over the course of 2023. The SaaS company provides HR management software. Its stock has fallen from a price approaching $370 in July to nearly $200 today.
The issue for the firm isn’t that it’s not growing: Paycom reported a 22% increase in revenues In Q3. Further, the company also posted a $75 million net income up from $52 million a year earlier.
As respectable as those numbers are, stock performance is really about how companies meet the goals that they set. Provide negative news to Wall Street and trouble will ensue. That’s the issue. Wall Street was expecting the company to report more than $411 million in revenues during the period and so the $406 million reported was a disappointment.
Paycom’s shares are headed in the wrong direction. The company has already seen drastic decreases in share price which make it highly risky at the moment. In the absence of positive news an investor’s best bet is to steer clear of PAYC shares.
On the date of publication, Alex Sirois 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.
