Not long ago, China’s Luckin Coffee (OTCMKTS: LKNCY) was found to have falsified sales figures to the tune of over $300 million. Its stock price took a tremendous tumble and it was delisted from the NASDAQ. Although the following three companies haven’t committed fraud on this level, you should still steer clear of them and invest your money elsewhere.
Nikola Corporation (NASDAQ: NKLA) got its name from scientist Nikola Tesla, exactly like rival Tesla (NASDAQ: TSLA). That’s where the comparison ends because unlike Tesla, Nikola has yet to deliver a single-vehicle. The company had zero revenue for 2019 and is expected to have zero revenue for 2020, with revenue maybe arriving late in 2021.
Nikola champions hydrogen-fuel cell technology to power its vehicles and although the cells take less time to charge and have a longer range, they cost more to produce, and there are only 44 charging stations across the U.S. — most of them in California. The only by-product of hydrogen-powered vehicles is water and they are considered to be very green tech but ironically, manufacturing these cells is an energy-consuming process that relies on methane, one of the worst greenhouse gases; all of these factors have triggered Elon Musk to decry the technology.
Since going public in a reverse-merger back in June, the stock has seen some volatility, rising quickly and then falling just as fast to settle in the $50 range as of July 17; most of the hype and support is coming from traders on the Robinhood platform where the stock is more popular than big players like Netflix (NASDAQ: NFLX) and Facebook (NYSE: FB). Instead of this company, you would be wiser to invest in real-deal Tesla.
Hertz (NYSE: HTZ), like all companies in the travel sector, was hammered by the pandemic and filed for Chapter 11 Bankruptcy on May 22. The company was in trouble long before COVID-19 however, accentuated by its purchase of Dollar in 2012, its investment in sedans rather than consumer-preferred SUVs, and its fleet-secured debt of over $13 billion. That last item is what really drove the nail in the company’s coffin as it had to make cash payments to its lenders when the value of its vehicles began to drop thanks to the outbreak.
The company is almost certain to be delisted by the New York Stock Exchange and that will further hammer Hertz as there will be fewer institutional investors to trade the stock. Hertz has over 90% debt in its total capital, with the industry average at 45-50%. Robinhood investors once again showed support for this very risky investment while its largest shareholder, billionaire investor Carl Icahn, dumped all his shares and realized a $1.8 billion loss. Instead of risking your money on this organization or the sector altogether, it would be more prudent to invest in a pandemic-resistant company like Dominos Pizza (NYSE: DPZ).
3. American Airlines
The third company in our list is also part of the travel sector and it was suffering before the pandemic as well. American Airlines (NASDAQ: AAL), the largest airline in the U.S., announced that it would resume selling middle seats on all their flights on July 1. With the U.S. undergoing a resurgence in cases, customers will be reluctant to travel with a company with no safety measures in place.
It’s a desperate move as American is deeply in debt to the tune of $38.5 billion, and expected to be at $40 billion by year’s end. The company also has the lowest Altman Z-Score (a financial formula for predicting bankruptcy) in the industry, at 0.57, with anything below 1.81 implying possible bankruptcy within the next two years. If the government was to bail out the airlines again, it would likely demand greater equity, which would mean share dilution and another stain on the company’s investment potential. As an alternative, you would be better off investing in Southwest Airlines (NYSE: LUV) instead; it does not sell the middle seat and has a better balance sheet, not to mention one of the best corporate cultures in the industry.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above Read our full disclosure policy here.
Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.