Robinhood investors are known to be a bit riskier than the average investor. The platform appeals to millennials, and its commission-free trading service makes it easy for people to invest even small amounts of money. When there is less money at stake, it can be easier to take risks. Some researchers also believe that the app encourages frequent exchanges (for example, it displays confetti when exchanges are made).
Unfortunately, high frequency trading doesn’t leave much room for in-depth stock analysis and can lead people to buy risky investments. Two of the riskiest stocks among Robinhood’s best stocks today are Cronos Group (NASDAQ: CRON) and American Airlines (NASDAQ: AAL). These are stocks that were among the most popular even in March, before the stock market crash, and they are still on the list today. Here is why these are bad investments that you should avoid.
Cannabis company Cronos is a bad buy for many reasons. On the one hand, it’s just not worth its current valuation of $ 2 billion. It’s richer than Aphria ($ 1.4 billion) and considerably higher than Aurora Cannabis ($ 809 million). And yet, Cronos’ total revenue over the past four quarters was just over $ 31 million. In comparison, Aurora generated sales of C $ 305.7 million in the past 12 months ($ 232.4 million) and Aphria generated revenues of C $ 369.2 million (C $ 280.6 million). dollars) during the same period. Cronos is simply not generating enough market share to make it a better buy than other Canadians cooking pots.
In its second quarter results for the period ending June 30, released on August 6, net sales of $ 9.9 million were up 29% year-over-year. However, in the Canadian market, its sales only increased by 1%. It was its new US segment that contributed much of the growth, with revenue of $ 2.2 million that was not there in the same period last year. About a year ago, on August 2, 2019, Cronos announced the acquisition of Redwood Holding Group, LLC, for $ 300 million, which expanded its presence south of the Canadian border. The company makes cannabidiol products derived from hemp and owns the Lord Jones brand. But in a crowded hemp market in the US, it may not be a slam dunk that this US acquisition will continue to drive Cronos’ growth going forward.
With high valuation and low organic growth, there is simply no reason to buy Cronos today. The stock is down 28% year-to-date, well below Horizons Marijuana Life Sciences ETF (OTC: HMLSF), which fell only 6% over the same period.
American Airlines is not a risky purchase because it is expensive; To multiple price / benefit less than 3, it could be an attractive value purchase. The problem is, there are serious long-term problems with the airline industry. Even after the COVID-19 pandemic is over, it will be years before travel numbers return to previous levels. According to the International Air Transport Association (IATA), a full recovery will not take place until 2024.
However, given the unpredictability of COVID-19 and its duration, there is certainly no guarantee that IATA will not push back on this estimate. A possible second wave of COVID-19 this fall could throw all projections out the window.
This paints a grim picture for any airline, including the US. The company needs help (funding) from the government, and if it doesn’t get it, it will have to lay off 19,000 workers by October. American had more than 133,000 employees at the start of the year, but is seeking to lay off at least 40,000 people. Some workers agreed to leave voluntarily and take early retirement buy-back packages, but this was not enough to meet the company’s goal.
In the meantime, the Texas-based company remains in survival mode to do what it can to keep operating. On July 23, American released its second quarter results for the period ending June 30, and sales of $ 1.6 billion were down 86% from the $ 12 billion generated during the same period last year. Its net loss of $ 2.1 billion fell significantly from a profit of $ 662 million in the prior year period. The good news for American is that this quarter has been a particularly bad one for the economy – almost every business has been hampered by closings, especially during the months of April and May. The third quarter is expected to be better, with cities starting to reopen in June.
Management said in the results release that it was trying to preserve its cash flow. American’s operating and capital expenses will decline by at least $ 15 billion in 2020, largely due to the decrease in thefts this year. In 2019, the company spent $ 42.7 billion on operating expenses and its capital expenditures totaled $ 4.3 billion.
Although American is keeping its head above water at the moment, this is an extremely risky stock to hold. As long as COVID-19 weighs on the economy, it puts the business at risk. American Airlines shares have fallen more than 51% this year, while the S&P 500 climbed more than 5%. And there is little reason to be optimistic that the stock picks up soon.
These stocks are not worth betting on
While investors in Robinhood may view these underperforming stocks as opportunities for great returns if they recover, this is just not a likely outcome for the foreseeable future. Cronos can make a difference, and the American can come together if all the stars align and there is no second wave of COVID-19, but it would take a lot of things to go right for it to happen. ‘either of those things happen. Investors – in Robinhood and elsewhere – had better invest in other growth stocks that have brighter futures and are more resistant to COVID-19.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.[ad_2]