I spend most days scouring the stock market for companies that I want to invest in. Naturally, there will be a few that I like and a load that I’m neutral on.
However, there will be some that I’d rather just steer clear of, for whatever reason.
Here are two such stocks right now.
Competition concerns
First up, we have boohoo (LSE: BOO). The fast fashion company grew tremendously both before and during the pandemic.
However, the share price has fallen off a cliff since. It’s now down 85% in five years. Ouch!
On its website, boohoo says its “vision is to lead the fashion e-commerce market globally“.
The problem is it’s not. After reportedly doubling its profits to more than $2bn last year, Shein looks to be leading that particular category. Its profit is almost what boohoo generated in total revenue last year!
Oh, and it looks like Shein will soon go public and raise a massive war chest. That should enable it to carry on selling tops and dresses for a couple of quid each for years.
Meanwhile, boohoo reported in its last financial year (which ended 29 February) that its revenue fell 17% year on year to £1.5bn. And its pre-tax loss widened to £159.9m from £90.7m the year before.
Now, fast fashion trends can change, well, fast. So perhaps customers will start ignoring all that choice and cheapness on offer from Shein and flock back to boohoo’s platform.
Also, Shein sends goods directly to shoppers from China, which reportedly attracts fewer UK taxes. Any closing of this loophole could level the playing field for the likes of boohoo.
If so, then the share price could rebound massively from the 34p it’s at today.
However, I’m not willing to put my money on that potential turnaround.
Meme stock madness is back
We’re seeing a big rise in stock market speculation again, in my opinion.
For evidence of this, look no further than Trump Media & Technology Group (NASDAQ: DJT). This is the parent company of Donald Trump’s alternative social network, Truth Social.
Its share price is up 62% in the past month!
That’s what I might expect to happen if a company posts incredible revenue and profits growth. However, that’s not the case here. Trump Media lost $58.2m last year on net sales of just $4.1m.
This puts the stock on a surreal price-to-sales (P/S) ratio of more than 1,100. For context, a P/S multiple of 10 would normally make me a bit nervous about investing in a stock.
Another thing that worries me here is that the company doesn’t use standard key performance indicators (KPIs) associated with social media companies. These would include total user numbers and average revenue per user (ARPU).
Without these metrics, investors are really in the dark about how to track progress (or otherwise). For me, this is another giant red flag.
Of course, if Donald Trump wins the upcoming election, there could be a spike in users signing up to the Truth Social platform. That might send the share price higher. So there’s that.
But buying the stock for this reason seems more like gambling than investing to me. So I wouldn’t touch it with a 10-foot pole.
