Stock Trade Market

In the stock market, knowing when and what stocks to sell is as critical as identifying when and what to buy.

Once hopeful contenders in automobile manufacturing, passenger ground transportation and electrical components industries, these companies now face daunting financial hurdles that could spell trouble.

Understanding why these stocks are ripe for divestment requires a closer look at their fundamental weaknesses. Each company presents unique challenges, from staggering equity declines due to impairment charges to mounting depreciation costs eating into profitability.

Similarly, despite its position in the green energy sector, one company among the trio needs help with profitability amidst high operational costs and restructuring expenses.

Whether it’s liquidity concerns, operational inefficiencies, or strategic missteps, these factors underscore the vitality of decision-making in managing investment portfolios.

By identifying these warning signals early on, you can proactively mitigate risks and safeguard their financial interests in an unpredictable market landscape.

Mullen Automotive (MULN)

Mullen Automotive (NASDAQ:MULN) leads in innovative electric vehicle designs. As of March 31, 2024, the company’s equity was $117.4 million, down from $272.8 million on September 30, 2023. The impact of impairment charges and other operating losses, at around $129.9 million, reflects the considerable decline of $155.4 million.

Despite stock-based pay, warrant exercises and other equity adjustments, equity has decreased considerably overall. Deeper financial trouble is also reflected in the sharp increase in loss per share from the prior year. Thus, the sizable impairment charges draw attention to probable overestimations of future cash flows and underlying problems with asset values.

Moreover, Mullen’s capacity to support its operations, research endeavors and development goals without largely depending on external funding is limited due to the rapid fall in cash reserves. This reliance may result in higher debt levels or, through extra share issuances, erosion of the ownership held by current shareholders.

To sum up, Mullen Automotive’s inclusion on the stocks to sell list stems from a sharp decline in shareholders’ equity, due to impairment charges and persistent operational losses.

Hertz Global (HTZ)

Hertz Global (NASDAQ:HTZ) is a major player in the car rental industry. There is a core weakness of Hertz Global that might potentially impede the company’s fast expansion prospects.

Tactical difficulties in fleet administration further compound the company’s substantial vulnerability to automobile depreciation expenses. Hertz revealed a startling $588 million rise in vehicle depreciation costs in Q1 2024 over Q1 2023.

This increase was caused mainly by falling anticipated residual values of automobiles and losses from vehicle disposal. This included a considerable $195 million loss from EVs kept for sale.

Further, high car depreciation considerably affects Hertz’s financial performance metrics. Depreciation expenses considerably impacted the company’s adjusted corporate EBITDA, which was negative for the quarter at $567 million.

Both this number and the adjusted net loss of $392 million, or a loss of $1.28 per diluted share, highlight the pressure on profitability and operational sustainability. Hence, these figures show a heavy financial load.

Finally, the above hinders Hertz’s ability to manage debt commitments or properly reinvest in expansion plans, making the firm a top pick on the stocks to sell list.

Plug Power (PLUG)

Plug Power (NASDAQ:PLUG) leads in hydrogen fuel cell systems. The company’s profitability and cost-control methods are the source of a fundamental vulnerability.

The firm generated $120.3 million in sales, but lost $0.46 per share. This disparity highlights a major obstacle to turning sales into bottom-line profitability.

The negative EPS suggests that operational costs are outpacing the rise in revenue. These include production, administrative costs and potentially considerable spending on research and development. Thus, this will eventually affect investor confidence and shareholder returns.

Additionally, impairment charges and financial restructuring further showcase the company’s financial difficulties. In Q1 2024, Plug spent almost $46 million on restructuring and asset impairments.

This consists of $40 million in non-cash charges for asset impairments and $6 million in restructuring expenditures targeted at streamlining operations and cutting costs. Hence, these expenses show that there are still difficulties in maximizing asset usage and matching expenses to income. Both of which are essential for attaining long-term profitability.

Overall, Plug Power’s high operational costs, margin pressures and considerable restructuring expenses have led to its presence on the top stocks to sell list.

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.