These three stocks were left for dead. Trading sideways or down for several years, they attracted a large body of short sellers.
But sometimes, they come back.
Red Robin Gourmet Burgers (RRGB +0.00%), Tesla (TSLA +0.91%), and GlobalStar (GSAT +0.04%) are showing fresh signs of life and proving their skeptics wrong at the moment. Are these zombie stocks back for good, or will some of them march right back toward an early grave?
Let's find out.
Image source: Getty Images.
Zombies by the numbers
|
Stock |
Short % of Float |
Operating Margin (TTM) |
1-Year Stock Performance |
|---|---|---|---|
|
Tesla |
24% |
(7.9%) |
63% |
|
Red Robin |
30% |
0.7% |
34% |
|
GlobalStar |
27% |
(63%) |
82% |
Data source: FinViz. TTM = Trailing Twelve Months.
All three of these companies have some serious issues. Their operating margins are razor-thin or negative, leaving no room at all for bottom-line profits or cash flows. Short-sale interest is riding high as many investors expect the recent gains to be wiped out by an upcoming crash.
Tesla: A misunderstood energy specialist
The stock earned its spot among these zombie stocks by trading sideways between 2014 and 2016, followed by a strong surge in 2017.
It's fair to say that Tesla has a lot riding on the upcoming Tesla Model 3 launch. The first mass-market car in Tesla's portfolio could make or break CEO Elon Musk's business empire. Recent reports on tight battery supplies don't paint a rosy picture, and it's easy to see why this stock attracts plenty of critics.
But that's actually a small part of the Tesla story.
In the long run, Musk wants to disrupt the global energy market, getting consumers and businesses hooked on battery packs and solar panels. The electric-car business achieves a couple of important goals along that path, such as ramping up battery production and kick-starting an electric revolution in the car industry -- not to mention supplying some much-needed capital that's needed to reach Musk's final targets.
So Tesla is burning cash, but it's raising debt and printing shares to keep the lights on for now. The Model 3 is expected to ease the cash-burning pressure a bit, followed by brand new semi and pickup trucks. In the long run, Tesla looks like a battery-powered cash machine that will make us forget all about these early car experiments.
I'm pretty sure that this zombie stock is here to stay.
Image source: Getty Images.
GlobalStar promises, the check is in the mail
The satellite communications specialist's stock chart peaked at $4.50 per share in 2014, when GlobalStar seemed poised to build a unique tower-based wireless network designed for use with the company's satellite-grade radio spectrum licenses. But those radio signals were thought to interfere with other wireless protocols such as GPS navigation and Bluetooth tools, so GlobalStar fought for years to get FCC clearance for its terrestrial network plans. And share prices plunged as the negotiations dragged on, all the way down to $0.73 per share back in December.
The version that was finally approved in late 2016 uses a slimmer spectrum profile than GlobalStar's early ideas, and the FCC imposed strict limits on the signal power the company can use. But that's still an approval, and the company is moving ahead with its tower-based network plans at the top end of the 2.4 GHz spectrum band. In fact, GlobalStar is seeking approvals for the same frequencies in over 100 countries around the world, hoping to create a uniquely global wireless service.
On the downside, GlobalStar is losing money and burning cash with plans to issue more stock in order to make some upcoming debt payments. That's a rickety balance sheet, folks. On the upside, the TLPS system could become a cash cow in the long run -- and the company is seen as a possible buyout target based on the market value of its spectrum license portfolio.
With lots of upside and plenty of downside risk, this is a zombie stock for gamblers and speculators. I'm staying on the sidelines for now.
Image source: Red Robin.
Red Robin: A hard-fought turnaround
Finally, gourmet-burger chain Red Robin saw share prices peaking above $90 in the summer of 2015 and crashing back down to $42 per share in October 2016. The stock has staged a decent recovery from that trough, without much support from Red Robin's actual business metrics. Profits have been plunging in recent quarters as the foot traffic to Red Robin's locations dwindled.
Nonetheless, Red Robin's shares surged in May as the company exceeded Wall Street's estimates across the board, and by large margins to boot. Sure, earnings fell 14% year over year, but analysts had been expecting a 45% profit plunge. The company is taking steps to win back its fleeing lunch customers with curbside delivery and a focus on value-priced Tavern Burger products.
This is starting to look like a successful turnaround effort, built on red meat and Burger-Flipping 101. Red Robin is executing where it was failing in recent years, and it's making an immediate difference to both the top and bottom lines.
Expect this zombie stock to stick around for a while.
