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This week, I did a little experiment. I reversed many of the data feeds I use to seek out relatively strong companies and instead sought out the worst companies in the market. Because I want to know who is going out of business…
It took exactly 38 seconds to find the three rock-bottom worst publicly traded companies out there.
I started with a scan of negative price-to-earnings (P/E) so I can be assured they don’t make money.
And I looked at the price-to-sales (P/S) ratio. For this experiment, I wanted ratios well into the double digits to gauge what any remaining investors think regarding valuations.
Then we targeted the balance sheet. Let’s find something terrible. Something with a Piotroski Score under 3 and a Z-Score (bankruptcy risk) under 1.5.
These would be spectacularly bad metrics, and for good reason: I want to make sure that, when these firms go under in 2023 or 2024, there is an implosion that we can see from miles away. I mean, it has to be so bad that not even private equity would bother with these companies. So, let’s a recap.
- P/E Ratio: Negative
- P/S Ratio: Over 10 (Even 20)
- F Score: 3 or Less
- Z Score: 1.5 or Less
And that brings us to three stocks...
Don't Buy These Stocks
Virgin Galactic Holdings Inc. (NYSE: SPCE)
Sir Richard Branson was able to make a lot of money on his Virgin brand. And plenty of other executives sold SPCE stock over the last five years. Since 2017, executives have sold $1.6 billion in SPCE stock. They’ve only bought about $100 million in that time.
Virgin Galactic is in the business of space tourism. But the stock continues to crater from its all-time highs. In 2021, shares popped above $55 per share. Today shares trade for under $5.
There’s a reason for this... The company’s numbers are terrible! Virgin Galactic has an F score of 2, a negative Z score, and a P/S ratio of over 769 times.
To justify its price today, the company would need to provide 100% of its revenue to investors for the next 750 years - seven and a half centuries. You’ll probably walk on the Moon before you can justify owning this stock ever again.
Nikola Corp. (Nasdaq: NKLA)
Remember this so-called Tesla-killing electric vehicle company? It’s the worse. It might be a plague on investors. Anyone still holding this thing should get free government healthcare – because they also perceive both crappy ideas as a value.
Remember… Nikola’s Founder, Trevor Milton, was found guilty in October of fraud — he artificially pumped up his stock and engaged in wire fraud. He’ll likely be sentenced to up to 25 years in prison in January.
Nikola’s stock looks like a company heading toward delisting and bankruptcy. Its balance sheet is a mess, with an F score of 2 and a Z score of negative 2.77%. The price-to-sales ratio is now at 22.4x. Owning this stock is the equivalent of putting a raging grease fire on your mantelpiece.
Odyssey Marine Exploration Inc. (Nasdaq: OMEX)
So, hey, kids. Imagine if you could own a stock with the insane and improbable moonshot of Virgin Galactic combined with the financial instability of Nikola.
Great news: Odyssey Marine Exploration.
Because why go to space when you can explore the cold-dark lunar feel of the ocean’s bottom? And with this stock, your money is also likely heading to Davy Jones’ locker.
The company operates in deep-sea exploration, focusing on procuring minerals under the oceans. This company started in the exploration business of shipwrecks, but then it found an excellent narrative for a public market with no ability to control reckless speculation. Why wouldn’t they exploit the utter stupidity of "YOLO" investors in 2020-2021?
OMEX has an F score of 3 and a Z score of -35.7. Simply put, this company is one creditor away from a serious problem. Its P/S ratio is 40x, meaning I’d be in my 80s by the time this stock justified its current price.
The only reason that I can think of to invest in these companies is if you’re heading for divorce and you don’t want your ex-spouse to have the money. Aside from that… save your cash. Or better yet, bet against them next year.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.
