{"id":8468,"date":"2020-01-27T20:36:22","date_gmt":"2020-01-27T20:36:22","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=8468"},"modified":"2022-02-26T13:06:48","modified_gmt":"2022-02-26T13:06:48","slug":"warning-sign-unprofitable-companies-shares-soaring","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/warning-sign-unprofitable-companies-shares-soaring\/","title":{"rendered":"Warning Sign: Unprofitable Companies\u2019 Shares Soaring"},"content":{"rendered":"\n<p>We have been noticing a trend not unlike the one we saw\nduring the late 1990\u2019s market run-up: an increasing number of publicly-traded\ncompanies reporting losses quarter after quarter, while their stock prices soar.\nThis disconnect of losing money \u2013 while enjoying strong stock appreciation \u2013 should\nhave investors treading carefully in the 11<sup>th<\/sup> year of this bull\nmarket, in my view.<\/p>\n\n\n\n<p>Here are some of the eyebrow-raising statistics that\ninvestors should be aware of:<sup>1<\/sup><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Nearly 40% of listed companies in the U.S.\nreported losing money over the last 12 months. This is the highest percentage\nof loss-makers we\u2019ve seen since the late 1990\u2019s (and excluding recessions like\n2001 and 2008).<\/li><li>Of the largest 100 companies that reported\nlosses, approximately 75% of them saw their shares <em>go up <\/em>over the last 12 months. <\/li><li>Of all the money-losing companies in the U.S.,\n41% of them saw their shares go up last year. (Takeaway: smaller companies are\nnot getting the same treatment as large-caps)&nbsp;\n<\/li><li>Categorically, the largest percentage (42%) of\ncompanies losing money are in the healthcare sector, mostly in biotech. 17% of\nthem are tech stocks, mainly the flashy IPOs like Uber and Pinterest. <\/li><\/ul>\n\n\n\n<p>Investors are placing a huge premium on disruptors and future\ngrowth, but the question remains \u2013 <em>is it\ntoo much of a valuation premium?<\/em><\/p>\n\n\n\n<p>_____________________________________________________________________<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_1_27&amp;content=stock_market_outlook_report\">Does this Mean the Bull is Running Out of Steam?<\/a><\/strong><br> \u00a0<br> While the Bull is in its 11<sup>th<\/sup> year, it is not dead yet! Instead of letting these statistics fill you with fear, I think it is best to continue to monitor earnings, focus on the hard data and stick to a well-diversified portfolio. To help you do this, we are offering all readers a look into our just-released February 2020 Stock Market Outlook report.<br> <br> This report will provide you with our forecasts along with additional factors to consider:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What Produces 2020 Optimism?\u00a0 <\/em><\/li><li><em>What of U.S. GDP Growth? <\/em><\/li><li><em>Is it time to buy U.S. stocks in January?\u00a0      <\/em><\/li><li><em>Will the \u201cU.S. China Trade War\u201d remain a stumbling block in 2020?<\/em><\/li><li><em>Small-cap      vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!<br> <br> <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_1_27&amp;content=stock_market_outlook_report\">IT&#8217;S FREE. Download the Just-Released February 2020 Stock Market Outlook<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_1_27&amp;content=stock_market_outlook_report\">2<\/a><\/sup><\/strong><\/p>\n\n\n\n<p>_____________________________________________________________________<\/p>\n\n\n\n<p><strong>Then There Are the IPOs<\/strong><\/p>\n\n\n\n<p>About 75% of IPOs last year were by loss-making companies,\nbut I was encouraged to see that investors proceeded with a bit more caution in\nthis space. In 2019, the class of IPOs underperformed the S&amp;P 500 by more\nthan 50% \u2013 a sign that investors aren\u2019t getting too exuberant over the flashy\nnew players in the market. It\u2019s been this way for the entirety of the bull\nmarket for IPOs \u2013 over the last 10 years, the class of new companies that have\nlisted are trading on average about 70% above their IPO price, trailing the\nS&amp;P\u2019s 190% rise over the same period.<sup>3<\/sup> <\/p>\n\n\n\n<p>Investors can look at this market scenario in a couple of\nways. On the one hand, we have investors skittish about flashy, high-growth but\nno-profit IPOs \u2013 a good sign that we are not seeing the type of exuberance that\nled to the tech bubble in the late 1990\u2019s. On the other hand, we have an\nunusually large percentage of listed companies in the U.S. that are currently\nlosing money, while the broad stock market continues to reach new all-time\nhighs. Losing money while delivering rapidly growing sales and revenues is certainly\nan acceptable proposition, but the question is how long can it last and how\nhigh of a premium are investors willing to continue paying? <\/p>\n\n\n\n<p><strong>Bottom Line for\nInvestors<\/strong><\/p>\n\n\n\n<p>Investors\nshould proceed with caution and be mindful of the premium you might be paying\nfor loss-making companies. Rising share prices have given many of these\nloss-making companies the ability to finance even more losses, which is a\nslippery slope particularly if we start to see a marked slowdown in economic\ngrowth. In the current environment, keep these two principles in mind:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Statistically, over historical periods\nof time, we find that stocks that are expected to report positive earnings per\nshare have generated higher returns than stocks that are expected to report\nnegative earnings per share.<\/li><li>In my view, the market is pricing many\nloss-making stocks <em>on the expectation<\/em>\nof future earnings growth. What we\u2019re often left with are major assumptions\nabout the business prospects of a company, as opposed to whether quarterly\nearnings are evolving (and growing) relative to expectations.<\/li><\/ul>\n\n\n\n<p>At Zacks Investment Management, earnings remain our core\nfocus in portfolio management and investment decision-making. We have a long\nhistory of earnings forecasting with proprietary processes in place that help\nus monitor earnings and earnings estimates \u2013 which in turn drive our\ndecision-making. With the bull market now in its 11<sup>th<\/sup> year, these\nprocesses will become ever-important, in our view. &nbsp;<\/p>\n\n\n\n<p>To help you get a deeper insight into earnings and other key economic indicators, check out our <strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-stock-market-outlook?source=website&amp;medium=blog&amp;term=motm_blog_2020_1_27&amp;content=stock_market_outlook_report\">Just-Released February 2020 Stock Market Outlook Report.<\/a><\/strong><br> \u00a0<br> This Special Report is packed with newly revised predictions to consider for 2020 that can help you base your next investment move on hard data. For example, you&#8217;ll discover Zacks\u2019 view on:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><em>U.S. returns expectations for 2020<\/em><\/li><li><em>What Produces 2020 Optimism?\u00a0 <\/em><\/li><li><em>What of U.S. GDP Growth? <\/em><\/li><li><em>Is it time to buy U.S. stocks in January?\u00a0      <\/em><\/li><li><em>Will the \u201cU.S. China Trade War\u201d remain a stumbling block in 2020?<\/em><\/li><li><em>Small-cap      vs. large-cap returns<\/em><\/li><li><em>And much more.\u00a0<\/em><\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report on fundamentals, earnings, growth, and innovation today!<sup>4<\/sup><\/p>\n","protected":false},"excerpt":{"rendered":"<p>75% of the largest money-losing companies saw shares go up last year. That could mean trouble ahead. <\/p>\n","protected":false},"author":3,"featured_media":7430,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[63],"tags":[],"class_list":["post-8468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8468","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=8468"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8468\/revisions"}],"predecessor-version":[{"id":10647,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/8468\/revisions\/10647"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=8468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=8468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=8468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}