Estimated read time: 3 minutes
Publication date: 30th Jul 2021 12:45 GMT+1
The markets have been on an absolute tear in the last 15 months. Since the start of 2020, the S&P 500 has gained around 40% despite a global recession induced by the ongoing pandemic. While the indexes are trading near record highs, there are few stocks that remain vulnerable in the near-term.
Here, we look at three such stocks that have significant downside potential from current trading prices.
One of the top-performing stocks on the NASDAQ, Moderna (NASDAQ: MRNA), is up a staggering 1,760% since it went public in late 2018. It has more than tripled in 2021 and has gained 320% in the last year. Moderna stock is currently trading at $340 valuing it a market cap of $138 billion. Wall Street forecasts Moderna to increase sales by 2,180% to $18.32 billion in 2021. Comparatively, its earnings might improve from a loss per share of $1.96 in 2020 to earnings of $24.57 in 2021.
Moderna expects to produce between 800 million and 1 billion COVID-19 doses in 2021 allowing the company to derive over $19 billion in sales this year. The company is one of the leading COVID-19 vaccine manufacturers in the world but there is a chance for sales to fall off a cliff once the pandemic is bought under control.
For example, Moderna sales are estimated to fall by 16% to $15.35 billion in 2022 while earnings might decline to $18.2 per share as well. Analysts tracking the stock have a 12-month average price target of $185 for MRNA stock which is 46% below its current trading price.
The second stock on my list is cannabis giant Cronos Group (NASDAQ: CRON). This Canada-based pot producer has severely underperformed the broader markets in the last two years. CRON stock is trading 68% below record highs and might lose another 20% from current levels.
In 2021, analysts expect Cronos to increase sales by 55% to $72.26 million. Comparatively, its also forecast to report a loss per share of $0.62 this year. Given it has 371.66 million outstanding shares, total losses will stand at $230 million in 2021. So, Cronos is expected to lose over $3 for every $1 in sales.
Cronos ended Q1 with $1.24 billion in cash which means it has enough liquidity to improve its profit margins without having to dilute shareholder wealth. In the March quarter, its sales rose by 50% year over year to $12.6 million. However, it still reported a negative gross margin and an operating loss of $43.5 million.
Cronos has just $9.36 million in debt and is backed by tobacco giant Altria. The latter pumped in $1.2 billion into Cronos to acquire a 45% stake in the company, back in 2018.
One of the most popular meme stocks in 2021, AMC Entertainment (NYSE: AMC) can lose up to 87% in market value in the next year, according to consensus price target estimates. AMC shares are up close to 2,000% year to date primarily due to a group of retail traders on Redditt who initiated a short-squeeze on the stock.
However, the company remains fundamentally weak as it ended Q1 with $813 million in cash and $11 billion in debt. It raised capital in Q2 which will increase its cash balance to approximately $2.2 billion in the June quarter. AMC also has $11 billion in debt and is forecast to report an adjusted net loss of $3.16 per share in 2021. It has 513 million outstanding shares so the net loss will be over $1.6 billion.
Analysts also expect a loss of $0.81 per share in 2022 which suggests AMC will have to raise additional capital going forward, making it one of the riskiest bets on Wall Street.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
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