Why are so many unprofitable companies the best performing stocks this year?

Small speculative unprofitable growth companies outside the major indexes are usually always the best performing stocks, because stocks in the same category are in the list of worst performing too. They have huge volatility.

Re: Why are so many unprofitable companies the best performing stocks this year?

#5

Post by abfan1127 » Thu, Oct 15, 2020, 3:40 PM UTC

m1117 wrote: post #2

It's psychology-fueled. Also, a lot of companies reinvest profit so they don't have to pay taxes.

is it fair to say that investors see more return through reinvestment rather than distributions? Reinvestment sees 100% of the capital, but distributions are at best 75%? Assumptions are that the reinvestment creates value fairly quickly and drives the stock price up.

Re: Why are so many unprofitable companies the best performing stocks this year?

#6

Post by baybal2 » Thu, Oct 15, 2020, 3:41 PM UTC

Because their owners believe it is their last chance?

Re: Why are so many unprofitable companies the best performing stocks this year?

#7

Post by bumby » Thu, Oct 15, 2020, 3:42 PM UTC

m1117 wrote: post #2

It's psychology-fueled. Also, a lot of companies reinvest profit so they don't have to pay taxes.

>companies reinvest profit

There central company to the article’s point (Snowflake) has no profit to reinvest

Re: Why are so many unprofitable companies the best performing stocks this year?

#8

Post by HarryHirsch » Thu, Oct 15, 2020, 3:43 PM UTC

m1117 wrote: post #2

It's psychology-fueled. Also, a lot of companies reinvest profit so they don't have to pay taxes.

Don't they use accounting tricks these days so they can keep their cash and then carry it to the stock market? This has the double advantage to keep the stock market inflated and compared to R&D where you risk product failure, the stock market is backstopped by the government and risk-free.

That's why we don't have flying cars. Instead of investment in core competencies we invest in the market.

Re: Why are so many unprofitable companies the best performing stocks this year?

#9

Post by TuringNYC » Thu, Oct 15, 2020, 3:44 PM UTC

Unprofitable can be good or bad or unknown:

Bad: they dont have product market fit and cannot price at a level that is profitable

Unknown: they do have product market fit and can likely price at a level that is profitable, but choose to underprice to capture market share and grow

Good: They are actually profitable but are re-investing all their profits into internal investment to become even more profitable in the future. example: Amazon for the last 20yrs

Re: Why are so many unprofitable companies the best performing stocks this year?

#10

Post by mdorazio » Thu, Oct 15, 2020, 3:46 PM UTC

"Almost one in five of these money-losing companies is up 100% or more this year. There are some huge gainers on this list including companies like Overstock.com (+1055%), Tesla (+429%), Peloton (+348%) and Moderna (+285%).

But there are also plenty of big losers of these money-losing firms. More than one-quarter of these stocks are down 10% or more this year while almost 50 names have fallen 30% or more in 2020."

So that explains it pretty well. You're basically making a VC shotgun portfolio out of the stocks with the exact same dynamics - the big winners pull the average way up and offset the large number of middling and poor performers. For a meaningful analysis, you would need to dig into the winning stocks specifically and ask why they're up so much.