The dog days of summer haven't struck down the stock market, which seemingly hits new all-time highs every day, but for the three stocks below, they've been among the worst performers over the past month.
trivago (down 26%)
Online hotel reservation site trivago lost more than a quarter of its value over the last 30 days, but it's also lost more than half of its value after hitting its apex at the end of July. The problem is, business keeps getting worse than it previously expected.
In the an update to the guidance it issued at the end of the second quarter, trivago said revenue growth would only be up 40% for all of 2017, compared to the 50% it previously said it would be. And that was worse than the 67% growth it enjoyed during the quarter. It all amounts to what seems to be a sudden deceleration in its business as the revenue it generates from each qualified referral developed from its hotel search platform is significantly worse than it expected.
These heightened costs are what caused trivago to turn a first-quarter profit into a second-quarter loss of 3.4 million euros. Selling and marketing expenses soared 60% during the period and continued to eat up more than 90% of its total revenue. That's no way to run a railroad or a travel site, and investors apparently thought now was the time to hop off this train before it completely derailed.
Equifax (down 24%)
Only Rip Van Winkle would not know what credit reporting bureau Equifax lost a third of its value, all of which occurred in the month of September. It suffered a massive security breach that exposed the most sensitive credit information about 143 million Americans to hackers.
What made it worse was its slow, clumsy response to the hacking incident. First it was revealed that three executives sold millions of dollars' worth of stock in the days after Equifax first learned of the breach. Although the credit bureau said the executives had no knowledge of the incident prior to their sales, it certainly looks suspicious and investigations are being launched into insider trading.
Then Equifax offered to provide credit monitoring for anyone affected by the security breach, but it only gave people a code they would have to wait several days to use to learn whether they were one of the 143 million affected. That would potentially expose millions of people to having their information used fraudulently.
Equifax remedied that one only to open up another by initially requiring people to give up all rights to sue the company if they signed up for the monitoring program. As outrage exploded over social media that people would be forced into arbitration for the problem Equifax caused, the company ended up removing the verbiage.
But that wasn't all. Equifax then tried to shift blame to the company that makes the software for its online databases as having a flaw that allowed the intruder in, but open-source software maker Apache Software Foundation said it had put out a patch for the hole in the Apache Struts program months ago and before the breach happened. Equifax never updated its software with the patch.
Needless to say, Equifax's reputation has been damaged but following the resignation of its CEO, the reporting bureau got a bit of bounce that took it from being down 33% to 24%.
Adomani (down 47%)
Hard to imagine anyone having a worse month than Equifax, but then there's auto parts maker Adomani, which has lost almost half of its value. While there was no real reason for the decline, the maker of drivetrains for electric and zero-emission vehicles is newly public and used a dubious tool for its IPO, making it a risky play.
Adomani is one of only a handful of companies that have made use of Regulation A+ that allows a business to go public by raising small amounts of cash from individuals and customers. In fact, big investment houses are barred from participating.
While Adomani had the distinction of being the first company to list on the Nasdaq exchange using the process in June, it raised only about $14 million. That's really a piddling amount in the world of IPOs, and it's going to make its stock highly volatile, which it has been.
Investing in Adomani is especially risky because the company has no current revenue. Investors must make a leap of faith that management will be able to successfully capitalize on its game plan.
Other companies are planning on using the Reg A+ route to go public and their offerings are going to be equally dicey. For example, better-burger chain Fatburger plans to IPO offering only a very small portion of the company's outstanding shares, meaning the Fat Brands parent will remain firmly in control of the business.
While it's a great opportunity for small, emerging businesses to gain access to investor capital -- more so than usual for such companies -- these businesses are definitely a case of buyer beware.