Understanding when to sell a particular stock might be as important in investing as when to acquire it. Here, the focus is on identifying stocks to sell during market downturns, as it is crucial to mitigate potential financial risks when investing.
Three identified companies suffer rising operating expenses and severe market hurdles due to market volatility and economic concerns, reducing the appeal of owning their stocks over the long run. It is important to comprehend these processes, as evidenced by the financial imbalance that implies pressure on profitability. Similarly, supply chain limitations, growing expenses and product reliance all increase the risk of profitability.
Further, it makes sense that a conservative production target and high fixed costs would impair the company’s fundamental capacity to grow and successfully gain market share. Investors may protect their portfolio from a market downturn by monitoring essential signs, including growing costs, supply chain restrictions and cautious growth predictions.
IonQ (IONQ)
IonQ (NYSE:IONQ) leads in quantum computing and related solutions for multiple industries. IonQ’s revenue for Q1 2024 was $7.6 million, up 77% from Q1 2023’s $4.3 million. However, the company’s operating expenses (OpEx) has gone up dramatically. The first quarter’s total OpEx and expenses came to $60.5 million, an 87% increase over the $32.3 million spent during Q1 2023. Certainly, OpEx is growing faster than the top-line, hampering the rise in operating income. This expense increase is primarily the result of research, sales and marketing.
Moreover, this signifies that rising costs pressure the company’s profitability even with increased revenues. In particular, there was a 99% rise in research expenses. These expenses exploded from $16.2 million to $32.4 million, a 2X increase. Additionally, there was a massive 151% increase in sales and marketing costs, going nearly 3X from $2.7 million to $6.7 million.
Overall, IonQ is one of the top stocks to sell because of the significant increase in OpEx without a corresponding rise in revenue. Fundamentally, this might limit IonQ’s potential for rapid expansion.
Eli Lilly (LLY)
Eli Lilly (NYSE:LLY) dominates the development, production and distribution of medications and related products. The company’s top-line growth in Q1 2024 is mainly derived from a few products, Zepbound and Mounjaro, to be specific. The 26% revenue surge was mostly driven by the diabetes and obesity drugs, with Mounjaro alone producing $1.8 billion globally in Q1 2024, up from $568 million in Q1 2023. This extreme reliance is dangerous. Eli Lilly is experiencing supply chain issues despite robust demand, especially for its fast-growing medications.
Additionally, Eli Lilly’s expenses have increased significantly, which can affect profitability. In Q1 2024, they grew by 12% due to rising pay and benefit expenditures and promotional initiatives. Higher development expenditures for late-stage assets and early-stage research investments — including a $75 million one-time charge for the Verzenio prostate program’s termination — were the cause of a 27% rise in research spending.
In summary, Eli Lilly ranks among the top stocks to sell due to its reliance on a few products, supply chain constraints and rising costs and expenses.
Lucid Group (LCID)
Electric vehicle (EV) maker Lucid Group (NASDAQ:LCID) hopes to compete in the expanding industry. Lucid anticipates producing about 9,000 vehicles in 2024, which aligns with its earlier projections. Despite appearing steady, this figure indicates a cautious production growth rate given the rising demand for electric vehicles (EVs).
Moreover, this cautious increase in production may pose a severe obstacle to gaining a bigger market share and satisfying future demand. The gross margin may remain unchanged in Q2 despite price modifications, suggesting that cost optimization efforts need more of an effect.
Additionally, the margin may also be further strained by projected increases in lower of cost and net realizable value (LCNRV) impairments and greater depreciation brought on by the Phase 2 activation of manufacturing facilities. Adjusted EBITDA loss for the firm in Q1 was $598.4 million, a slight uplift over Q4’s $604.6 million. While there is a slight improvement, the continued large EBITDA losses indicate severe financial difficulties. Hence, these losses are worrisome with the growing rivalry and the substantial capital expenditure required to scale production and turn a profit.
On the date of publication, Yiannis Zourmpanos did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.