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

awealthofcommonsense.com

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

#11

Post by sharkweek »

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream.

Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er.

"It's not about how much you earn. It's about what you're worth. And who is worth the most? Companies that lose money!"

He goes on to argue that if you don’t show any revenue then the possibilities are left only to the imagination!

Pre-revenue = maybe a 100x-er at some point!

Obviously silly and over simplified, but I do think that there is truth in the humor. Once this company gets its act together, it could shoot to the moon!

Edit: Here's a link to the scene: https://www.youtube.com/watch?v=BzAdXyPYKQo

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

#12

Post by ethbr0 »

I said this in another thread, and I think it's apt here.

If you have high growth, you can lose a lot of money and still have a good story.

If you make some money, but don't have high growth, then you can't tell nearly as compelling of a story.

Effectively, investors are assuming eventual profitability is inevitable, and measuring growth.

The 90s showed that's fair... sometimes. But definitely lets pathological corporate liars with juiced metrics slip through too.

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

#13

Post by polote »

bumby wrote: post #7
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

it does actually, when you reinvest profit you don't make any profit.

They reinvest the money before it could become profit, mostly by hiring more sales

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

#14

Post by deelowe »

HarryHirsch wrote: post #8
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.

We don't have flying cars because it's a silly concept.

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

#15

Post by legulere »

There’s just too much money flowing around. Just the other day I read that Tim Cook managed to double both revenue and profits. Stock value increased more than five-fold.

The stock market is bloated. It will be interesting how we will get out of that again.

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

#16

Post by airstrike »

>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%).

Peloton was a great idea with equally good execution and everyone being stuck at home has only increased its value proposition.

Moderna is one of the leading companies in the pursuit for a COVID-19 vaccine, at least allegedly so.

Tesla is Tesla. EV megatrend yada yada

I don't know the first thing about Overstock.com to be able to opine one way or another

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

#18

Post by ralston3 »

sharkweek wrote: post #11

I don’t know much about the stock market outside of throwing any savings I can muster into a vanguard fund, but articles like this remind me of the scene from Silicon Valley where the Pied Piper team is talking about finding a revenue stream. Their investor, the Mark Cuban caricature, Russ Hanneman butts in and yells at them about the dangers of showing revenue and how it proves you might only be a 2x-er. "It's not a…

Absolutely hilarious scene. Made even more funny by how scarily accurate it is XD

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

#20

Post by akiselev »

This analysis needs to exclude biotech companies like Moderna, otherwise it conflates high market risk companies that are burning money trying to become profitable with companies that are high on R&D risk and are practically forbidden from making money (from the general public) but are guaranteed an exit if the science works out (and will quickly fall to zero if it doesn't).

Given the 5-10 year time frame for devices and 10-20 years for drugs and complex therapeutics, most successful biotech companies IPO after phase 1/2 trials when they have zero revenue (it's illegal for them to charge consumers for anything related to the product until it's approved). Pharmaceutical companies have the benefit of knowing "product-market fit" ahead of time so a successful phase 3 is all but guaranteed a multi-billion dollar acquisition (it even happens at phase 2 for promising candidates). This has been going on for decades with increasing frequency thanks to the pharma industry falling off the small molecule cliff and analyzing these companies in the same group as VC subsidized rideshare or whatever isn't going to yield the best results.

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