With only a few weeks left in 2023, investors are getting ready to close the books on a surprisingly strong year. Through Dec. 8, the S&P 500 is now up 20% and just touched its highest point all year.
2024 could be shaping up to be another winning year for stocks if investors get the soft economic landing they've been hoping for. However, not every stock will be a winner next year, just as there were plenty of losers in 2023, despite the broader rebound.
Let's take a look at three stocks in particular that investors should steer clear of in 2024: Beyond Meat (BYND +5.19%), ChargePoint (CHPT +0.48%), and C3.ai (AI 0.86%).
Image source: Getty Images.
1. Beyond Meat: A recipe for losses
Shortly after its initial public offering (IPO) in 2019, everything seemed to be going right for Beyond Meat. Sales were through the roof with revenue tripling, plant-based meat was the buzzy new thing, and new products from Beyond were highly anticipated.
Fast-forward a few years and this growth story has gone rotten. The pandemic might have sunk Beyond Meat's sales at restaurants, but the real reason for the plant-based meat purveyor's troubles is that consumers don't seem to want its product, at least not at the level the company envisioned or has built its business for.
NASDAQ: BYND
Key Data Points
Fast-food restaurants have offered plenty of Beyond Meat options, but many of them have disappeared from the menu as consumers have responded with a lukewarm "meh."
The company's financial results speak for themselves, and not in a good way. Beyond Meat has six straight quarters of declining revenue, and its gross profit has been negative in three of its last four quarters, meaning the business is losing money even before spending on overhead costs like marketing and management salaries. A negative gross profit alone is a red flag, but when combined with declining revenue, it signals that a business is fundamentally broken.
The company has a plan to cut costs and prioritize gross margin expansion, but that seems unlikely to change the fundamental problem with the business, which is that consumers don't want its product enough to pay a premium for it. And Beyond isn't able to lower its costs enough in the competitive food market to make a profit. While the stock has already fallen considerably from its IPO, it's not cheap by any meaningful measurement and should continue to slide without a drastic turnaround.
2. ChargePoint: Stuck between Tesla and a hard place
Like a lot of electric vehicle companies, ChargePoint stormed onto the public markets through a SPAC in 2020 with high hopes of being a leader in an emerging industry. But the stock has steadily fallen in the three years since then.
The last year has been especially brutal for the electric vehicle (EV) charging specialist. Nearly every major EV maker has announced plans to adopt Tesla's North American Charging Standard (NACS) as early in 2025, meaning future models won't support ChargePoint's Combined Charging System.
ChargePoint is now ramping up production of NACS-compatible chargers, but Tesla's decision to open its charging to other EV makers puts ChargePoint at a clear competitive disadvantage. In addition to producing Tesla-compatible chargers, it also plans to deploy NACS adapters to existing stations, but that just means additional capital expense at a time when the company can't afford it.
NYSE: CHPT
Key Data Points
ChargePoint is already feeling the slowdown in EVs. Revenue fell 12% to $110 million in its third-quarter earnings report last week and it reported a gross margin of negative 22%, showing it's experiencing the same structural problems as Beyond Meat. ChargePoint also just ushered out its CEO and CFO, reflecting the stark challenges facing the business. But it takes time for new management to put together a turnaround strategy even in a best-case scenario.
With losses mounting, ChargePoint simply doesn't have that kind of time.
3. C3.ai: This AI bubble isn't sustainable
Unlike Beyond Meat and ChargePoint, C3.ai stock actually had a good year in 2023. Not only has the stock recorded gains this year, but it's jumped 152% through Dec. 8 as it's benefited from a boom in AI stocks.
NYSE: AI
Key Data Points
Excitement over ChatGPT and other generative AI technologies pumped up AI stocks of all stripes as investors were willing to pay a premium for any company that could tie itself to the new technology.
C3.ai might talk the AI talk, but it has yet to walk the walk, a surprise considering the surging demand for the new technology. The company's revenue growth accelerated to 17% in its recently reported fiscal second quarter, which was its fastest growth rate in several quarters. But that only represented a slight increase on a sequential basis. C3.ai also did not raise its revenue guidance, keeping it at $295 million-$320 million for the fiscal year, which indicates 15% growth at the midpoint.
However, C3.ai did adjust its bottom-line guidance, calling for a wider adjusted operating loss of $115 million-$135 million, or roughly 40% of revenue. Just two quarters ago, management said it would deliver an adjusted operating profit by the end of the year, but it's far from that target. Despite management's talk about customer interest, the only thing that's changed is that C3.ai now needs to spend more money to deliver the same level of revenue growth it had forecast earlier.
That's not a recipe for success, especially at a price-to-sales ratio above 10. Expect C3.ai's share price to come back down to earth next year.
