What do you call a growth stock that isn’t growing any more?
The answers are many. You can call it a disappointment. A drain on your portfolio. A bad investment. Any of these are true of F-rated growth stocks, as evaluated by the Portfolio Grader.
And in today’s market, you can ill-afford to a bad investment. The market is in some turmoil this summer.
I know it’s only temporary, but times like these are when some investors start to panic and make bad decisions – particularly when they see their hard-earned money start to drain away in a sell-off.
It can be tempting to take a flyer on a stock in a weakened position. In fact, sometimes that can be a very good decision to buy strong growth stocks at a discount.
You also need to be able to identify those opportunities rather than F-rated growth stocks that have little, if any, hope of bouncing back in the near future.
F-rated growth stocks are typically characterized by weak fundamentals, poor financial health, and inconsistent performance, which can lead to substantial losses.
They can also be volatile, with extreme price fluctuations driven by speculation rather than solid financial performance.
We’re using the Portfolio Grader today to help us identify the worst growth stocks available today, based on factors such as analyst sentiment, growth history, earnings reports and momentum. All of these names are on my list of stocks to avoid today.
Nio (NIO)
Chinese EV maker Nio (NYSE:NIO) has to be one of the most disappointing electric vehicle stocks. I had high hopes at one point that Nio’s battery-swapping technology would be a difference-maker and would allow Nio to become a dominant EV company in Asia.
But not any longer. It’s hard to have faith in any company that used to trade for $60 a share and now is down closer to $3.
Nio has had a lot of starts and stops. It’s getting ready to launch its new mass market EV brand, Onvo, with the first Onvo model, the L60, to debut in September.
There’s also a lot of competition in the Chinese EV space, and Nio will likely be shut out by cars that are selling at a lower price point than the L60, which has a pre-order price of $30,460.
Nio reported delivering 20,498 vehicles in July, which is the third consecutive month that the company delivered more than 20,000 vehicles. But the market is obviously not impressed, as NIO stock is down 60% this year and 33% in the last three months.
Nio gets a “D” rating for growth and an “F” rating overall in the Portfolio Grader.
FuelCell Energy (FCEL)
FuelCell Energy (NASDAQ:FCEL) manufactures, operates and services Direct Fuel Cell power plants that produce hydrogen. For providers who are looking for a green energy solution, hydrogen is appealing because it produces zero carbon emissions.
It has the potential to be highly efficient in fuel cells by providing more energy per unit of fuel compared to traditional combustion engines.
The company has more than 100 fuel cell plants in operation around the world and has generated more than 15.8 million megawatt-hours of power.
But just because it sounds like a good idea doesn’t make something a good investment. Second-quarter revenue was $22.4 million, down from $38.3 million a year ago. FuelCell Energy posted a loss of $7.1 million, or 7 cents per share.
Obviously, growth is not in the cards for FuelCell, despite its efforts to expand its business in the Koren market. There are much better opportunities for investors.
FCEL stock is down 71% so far this year. It gets “F” ratings for growth and overall in the Portfolio Grader.
Mullen Automotive (MULN)
Tell me if you’ve heard this one before – Mullen Automotive (NASDAQ:MULN) stock is below $1 per share again.
This is a sad repeat of a story that’s plagued the EV company for the last several months. Mullen actually enacted three reverse stock splits last year, including a 1-for-100 split in December, in a desperate ploy to keep the stock price over $1 and maintain compliance with Nasdaq listing rules.
The cumulative ratio of all these stock splits are 1-for 22,500. And more dilution is on the way, as Mullen announced plans to resell up to 85 million shares on the conversion of notes and exercise of warrants.
When Mullen made the announcement there were only 24.85 million shares outstanding. Mullen acknowledged that the transactions could lead to “substantial diminution to the value of shares of common stock held by our current stockholders.”
Mullen only invoiced for 362 vehicles in six months ending March 31. It posted a net loss of $235 million in that period, while invoicing only $16.3 million.
Mullen stock is trying to make deals to turn things around, but another reverse stock split seems inevitable. MULN stock is down 95% this year and earns a “C” rating for growth and an “F” rating overall in the Portfolio Grader.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) is another green power company. It makes power optimizers and inverters to help solar panels operate more efficiently.
The primary issue for SolarEdge, however, isn’t the quality of its work or the efficiency of its equipment. It’s the overall economy that makes solar power investment less appealing right now.
Interest rates remain inflated and the Fed seems stubbornly opposed to providing relief. Solar panels are a significant expense and fewer people are willing to borrow money to convert their homes to solar as long as interest rates remain high.
Revenue in the second quarter was $265.4 million, down 73% from a year ago. The company posted a net loss of $130.8 million, a year after posting a profit of $119.5 million.
If interest rates drop, then SolarEdge may return to its growth ways. But that’s not happening now. SEDG stock is down 75% this year and gets “F” ratings for growth and overall in the Portfolio Grader.
2U (TWOU)
2U (NASDAQ:TWOU) is an educational technology company that works with nonprofit colleges and universities to create online degree and nondegree programs. But it hasn’t been a great business model, as many colleges are able to offer online courses without outside help.
The Maryland-based company filed for Chapter 11 bankruptcy in July, after reporting more than $1 billion in debt in the first quarter and only $125 million in cash.
2U announced a deal with lenders to cut its debt by 50%, while extending the duration of its loan. It will also receive an additional $110 million in capital from lenders.
TWOU stock is down 95% this year and is approaching $1 per share despite instituting a 1-for-30 reverse stock split this summer. The stock is one to avoid.
TWOU gets “F” ratings for growth and overall in the Portfolio Grader.
Dermata Therapeutics (DRMA)
Dermata Therapeutics (NASDAQ:DRMA) is a clinical-stage biotechnology company based in California. Dermata is focused on creating treatments for skin conditions and diseases.
Its lead drug candidate, DMT310, is in Phase 3 trials for the treatment of acne, rosacea, and psoriasis. It is a once-weekly topical product made from naturally sourced freshwater sponges. DMT310 has been studied for the treatment of acne, rosacea, and psoriasis.
The company says it’s enrolled more than 50% of its patients in the trial and hopes to complete enrollment in the second half the year.
The challenge with biotech companies, of course, is that research and development is expensive and companies don’t have a revenue stream during the long testing process. Companies are reliant on raising money and acquiring partners during the testing until they can bring a drug to market and start gaining revenue.
For the second quarter, Demata reported having $4.9 million in cash on hand, down from $7.4 million in the previous quarter. The company spent $4.8 million during the quarter on research and company operations, and raised $2.3 million from selling warrants.
The company believes it has sufficient funds to operate into the fourth quarter, so it will have to raise additional money if its going to continue its work.
DRMA stock is down 75% this year and gets a “C” rating for growth and an “F” rating overall in the Portfolio Grader.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) had another bad day this week, as the company posted another disappointing earnings report that missed analysts’ expectations for both revenue and earnings per share.
The company, which is attempting to build the first commercially viable market for hydrogen fuel cell technology, posted revenue of $143.3 million for the second quarter, down from $260.1 million a year ago.
The company also posted another big operating loss of $244.6 million slightly worse than the $233.8 million loss that Plug sustained in the second quarter of 2023. Overall, Plug’s loss came in at 36 cents per share.
Even though Plug has deployed more than 69,000 fuel cell systems and more than 250 fueling stations, I wouldn’t call what its doing a viable business. At some point you need to start making money, and Plug isn’t anywhere close.
Plug is projecting full-year revenue this year to be between $825 million and $925 million. A year ago it posted revenue of $891 million, so it appears growth this year will be challenging at best.
PLUG stock is down 54% this year and gets “F” ratings for growth and overall in the Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
