HomeBusiness2 consumer stocks I wouldn't touch with a 10-foot stick

2 consumer stocks I wouldn’t touch with a 10-foot stick

The past fifteen months have been a fantastic time to own stocks. The past 15 years, if we’re really honest. In this most recent period, an artificial intelligence (AI) boom and rising profits for tech companies have pushed stock market indexes to new highs multiple times in 2024.

Investors also seem eager to bet again on money-losing startups. In that way, the market looks eerily similar to 2021. While stocks may be rising today, this is a dangerous time to buy growth stocks. Numerous examples of so-called “hot” stocks from 2020 and 2021 are down 90% (or worse) today from their all-time highs. As an individual investor, it is imperative that you learn from recent history and remain rational with your personal investment portfolio.

Here are two consumer stocks I wouldn’t touch with a 10-foot pole. Each of these has a major potential downside for years to come.

1. Open Door: Flawed from the start

The first stock on my list is Opendoor technologies (NASDAQ: OPEN). The start-up wants to use an online platform to buy and sell residential real estate. It was made public in 2020. Today, shares are 93% off all-time highs. However, I think there’s probably more pain ahead for Opendoor shareholders.

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Why? First, Opendoor has never been profitable. In the last twelve months, it posted a negative net income of $283 million on a gross profit of $431 million. Revenue fell 62% year-over-year in the first quarter of 2024 as management downsized operations to remain operational. The financials are bad, and with revenues heading in the wrong direction, it’s hard to see how Opendoor will turn a profit anytime soon.

Buying and selling real estate through an online portal was a flawed business model from the start. The interest rate increase in 2022 made this even clearer. While the friction in buying a house was reduced by, among other things Zillow, Opendoor does not solve problems for consumers. It is also a capital-intensive business that must be financed with debt. As Opendoor grows, it must add more real estate inventory to its balance sheet, which eats up much of its cash and makes the business difficult to run.

It’s no surprise that Opendoor’s book value per share has fallen 68% from an all-time high to $1.30. Book value per share tells investors the net value of Opendoor’s balance sheet and is important for an asset-heavy company. What should shock investors is that Opendoor is trading at a share price of $2.50, which is almost twice its book value per share. A book value that continues to decline quarter after quarter.

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Opendoor’s business model has no redeeming features, even if interest rates start falling again. Don’t take a flyer on this stock even though it has a low share price. There could be many more downsides ahead.

OPEN Net Income (TTM) chart

OPEN Net Income (TTM) chart

2. Beyond Meat: where is the growth?

It may be the only company with a more troubled business than Opendoor Beyond meat (NASDAQ: BYND). The plant-based meat startup went public in 2019 amid the craze for plant-based meat substitutes. Investors were excited about these new technologies and what it could mean if these new foods could disrupt the traditional meat sector.

Turns out these dreams never really came true. Beyond Meat’s sales have been declining for several years, with terrible margins to top it all off. Last quarter, sales fell 18% year-over-year, while gross margins fell to a paltry 4.9%. This means that the company has to heavily discount its products and sells them barely above cost price.

It will come as no surprise that this has led to poor profit figures. Net income has been negative since 2020 and the stock is now 96% lower than ever. But it doesn’t look like there’s any relief on the horizon. Research shows that the popularity of counterfeit meat products among consumers is declining, which could mean even more pain for Beyond Meat in the coming years.

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No growth, terrible margins and bleak prospects for the industry. Beyond Meat is in a dire situation. Stay far away from this stock.

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Beyond Meat, Opendoor Technologies, and Zillow Group. The Motley Fool has a disclosure policy.

2 Consumer Stocks I Wouldn’t Touch With a 10-Foot Pole was originally published by The Motley Fool

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