The fear of missing out (FOMO) is a powerful force in financial markets. When investors see other people quickly making multibagger returns, it can be tempting to hop on the bandwagon. However, when the music stops, those late investors are often left holding the bag. Let's explore why Quantum Computing Inc. (QUBT 7.42%), also known as QCi, and Beyond Meat (BYND 14.65%) could be excellent examples of this investing pitfall.
1. Quantum Computing Inc. (QCi)
Recent technological breakthroughs (such as Alphabet's self-correcting Willow chip) have ignited optimism about the quantum computing industry as a whole, sending shares of QCi up by over 1,000% in the last year. However, while a rising tide can lift all boats in the short term, QCi's weak fundamentals could make it give back its recent gains over the long term.
NASDAQ: QUBT
Key Data Points
A company's history can give important clues about its future, and QCi's history is odd to say the least. Founded in 2001, it initially focused on selling inkjet cartridges before pivoting to beverage distribution in 2007 and eventually quantum computing soon after the current CEO, Robert Liscouski, took the helm in 2018. Now, it specializes in photonics (devices designed to manipulate light) and other quantum computing hardware in a pick-and-shovel take on the industry.
Analysts at McKinsey & Company think the quantum computing industry could be worth $100 billion in a decade. And if things go as expected, early movers like QCI could potentially tap into a vast opportunity. However, the company's current fundamentals don't look encouraging.
Second-quarter revenue dropped roughly 67% year over year to just $61 million, while operating losses almost doubled to an eye-popping $10.2 million -- driven by outflows like office salaries and research and development. And with quantum computing years or even decades away from becoming mainstream, QCi investors look far too early to the party. They are also overpaying because the stock's price-to-sales (P/S) ratio of over 9,000 is a dramatic premium over the S&P 500 average of just 3.5.
2. Beyond Meat
With shares down by a jaw-dropping 97% since its initial public offering (IPO) in 2019, Beyond Meat has a poor track record of creating sustainable shareholder value. However, many investors were willing to overlook this in October when shares jumped over 1,000% in four days. But while retail investors have poured into Beyond Meat amid speculative hype, the company's fundamentals remain extremely weak, making it unlikely to hold on to its recent momentum over the long term.
NASDAQ: BYND
Key Data Points
At the end of the day, companies must generate profits to pay for continued operations and motivate shareholders. If they consistently fail to do this, their equity value will drop as investors jump ship and management is forced to raise cash by taking on debt or creating and issuing new units of stock -- diluting the stock already in existence. Beyond Meat is already in this type of situation.
Image source: Getty Images.
Beyond Meat's second-quarter net revenue dropped roughly 20% year over year to $75 million, driven by continued weakness in U.S. retail demand. Meanwhile, operating losses stand at $32.9 million -- quickly eating away at the company's cash and equivalents, which totaled $103.5 million as of June 28. That's not even enough to cover one year of current cash burn.
Beyond Meat used the recent rally as an opportunity to push through a restructuring deal that will extinguish $800 million of its debt in return for 326 million shares of its common stock (the company currently has about 76.1 million shares outstanding). But this move just kicks the can down the road. Constantly raising capital won't solve Beyond Meat's core problem, which is that customers aren't very interested in buying what it is selling. And shares will likely continue to underperform.
