Buyer Beware: 3 Stocks Teetering on the Brink of Bankruptcy in 2024

Stocks to sell

Bankruptcy is simply a legal proceeding in which companies seek relief when unable to repay their debts. Although it relieves the debt burden, the effects of bankruptcy on a stock are often fatal. Publicly traded companies that declare bankruptcy see their share prices fall dramatically.  The hint of bankruptcy alone is often enough to send shares plummeting toward zero.

Fortunately for investors, there are easily identifiable metrics that measure a given company’s risk of bankruptcy. Unfortunately, investors often disregard such metrics for various reasons.

The companies discussed below are all flashing red in that regard. Each is susceptible to bankruptcy based on those aforementioned metrics. For that reason, investors should avoid placing their capital in said firms. 

Trump Media & Technology Group (DJT)

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Trump Media & Technology Group (NASDAQ:DJT) is the stock behind the social media platform known as Truth Social. A lot has been written about the stock and its connection to former president Donald Trump.

Let’s start first with the evidence that the stock is at high risk of a bankruptcy. Investors can simply refer to something known as the Altman Z score in order to discern a given company’s bankruptcy risk. Those with a score below 1.8 are considered to be at high risk of bankruptcy in the next two years. DJT stock carries an Altman Z score of -9.78

Despite its troubles, Trump Media & Technology Group continues to thrive. The stock has risen of late due to multiple pieces of news. One that I find particularly interesting is that the company fired its auditor. That firm has been accused of massive fraud by the Securities and Exchange Commission. Should investors believe the firm now has a clean auditor as it always desired or that the company chose its previous auditor for obvious reasons? I’ll leave that up to you to decide. Regardless, DJT stock is highly dangerous and at risk of bankruptcy.

Rivian (RIVN)

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Rivian (NASDAQ:RIVN) stock, like DJT shares above, is clearly at risk of bankruptcy in the next two years. It also has a negative Altman Z score indicating that it could fold at any point in the next 24 months.

There are a couple of points there that investors should be aware of as they pertain to the company’s most recent earnings report. Primarily, the statement that the company expects it will reach gross profitability by the fourth quarter of this year.

The point I want to make there is that gross profit is simply the difference between revenues and cost of revenues. Even if Rivian reaches gross profitability in the fourth quarter it will continue to produce large net losses.

Case in point, the company reported a gross loss of $527 million in the first quarter. That led to a net loss of $1.484 billion. The company lost nearly $39,000 on every vehicle it delivered in Q1. 

Even if Rivian ends up avoiding bankruptcy, investors should stay away from the company until it can substantially improve its business overall.

Peloton Interactive (PTON)

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Investors should be able to easily find several good reasons to avoid Peloton Interactive (NASDAQ:PTON) stock. Perhaps the most obvious is that the pandemic is over and Peloton’s primary catalyst no longer exists. You, me and everyone else have a full array of exercise options available to us. No pandemic lockdowns are preventing us from engaging in any form of exercise week choose.

That’s an easy narrative to understand in relation to Peloton’s business. Let’s put some numbers to it because it makes the risk all that much more obvious. Peloton’s EBITDA growth rate is negative 193% over the last three years. It is headed in the direction of increasing losses at an astounding rate. There is essentially no hope left for the company and like the two firms above, Peloton is extraordinarily risky as measured by its Altman Z score

Investing in the stock is much more likely to result in heartache than elation.

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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

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