A values-based approach, slow and steady progress, competitive advantage. These are the things Warren Buffett loves. And that's why he would never resort to investing in one of these companies.
Betting on speculative companies can be tempting for many investors. But not for the best of us. Warren Buffett prefers only the "tried and true" classics, which certainly don't include the titles we'll feature here.
Vroom (as the somewhat humorous name suggests) operates a platform for buying and selling used vehicles. The company's sales growth skyrocketed during the pandemic due to a widespread shortage of used vehicles. However, results over the past few quarters have shown a significant slowdown in revenue expansion. In fact, in the second quarter, Vroom's sales fell by more than 37% from a year earlier.
Vroom's main problems are low gross margins and rising operating costs. It is difficult to foresee a scenario where the company could achieve profitability in the current economic climate. Its business is facing inflation-related cost increases, labor shortages and supply chain issues that continue to weigh on its results. Its long-term earnings trajectory is therefore in the stars, making VRM a stock that is quite risky.
But a similar fate has befallen several of Vroom's peers in the sector. Also suffering is the well-known $CVNA, which has recently become something of a second Palantir among investment investors.
AMC Entertainment is the operator of a movie theater chain whose stock soared during last year's meme hype. But over the past year, its stock has largely suffered a significant decline, losing more than 80% of its value.
After a strong start to the year due to better-than-expected results for individual films, their results have become as lackluster as ever. Their individual box office receipts have fallen well below pre-pandemic levels and are unlikely to do well in the coming quarters. In addition, AMC continues to consume huge amounts of cash each quarter and has reached a point where significant dilution will very likely be required. While the company might be able to sustainably manage if it eliminates interest expense, I think this cash burn situation is unlikely to change anytime soon.
Moreover, it will forever have the hallmark of a "meme stock" that will quite possibly cause it to be pumped up a few more times by the remaining retail believers while the institutional investors stay away.
Peloton caught a huge wind in its sails and its business grew to unprecedented heights during the pandemic. The home fitness equipment provider saw huge demand for its products as gyms were closing. However, its business is collapsing in a post-pandemic world and will likely continue to lose money rapidly.
Peloton's growth rate is slowing while its costs are rising aggressively. This is a recipe for financial disaster. In fact, it may well take an enormous effort to ensure that Peloton at least somehow survives.
Still, of course, there is a chance that these companies will recover and investors who buy now at a ridiculous price will rejoice in the future. But it is certainly very risky indeed and certainly not something that fits in with the investment style of Warren Buffett and other giants.
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Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and a few other analyses. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.