The fear of missing out (FOMO) often drives investors to jump into markets as others make quick profits. However, when the rush is over, latecomers may find themselves with losses. Take, for example, Quantum Computing Co., Ltd. (NASDAQ:QUBT) or beyond meat (NASDAQ:BYND). These companies illustrate some of the dangers of such impulsive investments.
Advancements in technology, like Alphabet’s self-modifying Willow chip, have stirred things up in the quantum computing industry. Recently, QCi’s stock skyrocketed by 1,000% in just a year. However, this might just be a temporary lift; its weak fundamentals pose concerns about sustaining these gains long-term.
Looking at a company’s past can yield clues about its future, and QCi has some unusual history. It started in 2001 selling inkjet cartridges, then switched to beverage sales in 2007. It fully entered the quantum computing scene when Robert Liskowski became CEO in 2018, focusing on photonics and other hardware.
Analysts from McKinsey & Company estimate that the quantum computing market could hit $100 billion in a decade. If predictions hold true, companies like QCi could benefit greatly from being early movers. Still, their current financial outlook isn’t promising.
In the second quarter, sales plunged nearly 67% year-over-year to about $61 million, while operating losses nearly doubled, hitting $10.2 million. This hefty loss is attributed to high administrative costs and ongoing research. As quantum computing gears up for mainstream adoption, it’s perhaps premature for investors to celebrate. In fact, stocks seem overpriced. Price-to-sales (P/S) ratio is around 9,000, compared to an average of 3.5 for the S&P 500.
Since then, QCi’s stock has plummeted by 97%. Beyond Meat, which had its initial public offering in 2019, has struggled to create value for its shareholders. Still, when its stock surged over 1,000% in just four days last October, many rushed to invest, spurred by excitement. Yet, like QCi, Beyond Meat’s fundamentals remain weak, indicating that it may not sustain its recent growth.
Ultimately, companies need to be profitable to manage ongoing operations and keep their shareholders motivated. If they fail to generate profits consistently, it can push investors to sell, resulting in management needing to take on debt or generate new shares, which dilutes existing ones and reduces the total share value. Beyond Meat finds itself in this predicament already.
Beyond Meat reported second-quarter net revenue of $75 million, down about 20% from the previous year, largely due to weak U.S. retail demand. Its operational losses reached $32.9 million, significantly depleting its cash reserves, which stood at $103.5 million as of June 28. This is barely enough to sustain its current financial needs.
The recent surge in its stock price was utilized by Beyond Meat to renegotiate a restructuring deal aimed at eliminating $800 million in debt in exchange for 326 million shares of common stock. While this seems strategic, it could lead to unexpected challenges ahead. Even with additional funding, Beyond Meat’s fundamental issue persists: there’s a lack of customer interest in its products. Consequently, its stock prices are likely to continue underperforming.
Before investing in quantum computing stocks, keep the following considerations in mind:
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Will Ebifan isn’t invested in any of the mentioned stocks. The Motley Fool holds stakes in and recommends Alphabet and Beyond Meat. For further details, refer to the disclosure policy.
2 overvalued stocks to sell in November Originally published by The Motley Fool
