You’ve probably heard of Carvana Co. (NYSE: CVNA), Beyond Meat Inc. (Nasdaq: BYND) and Wayfair Inc. (NYSE: W).
All three have a few things in common.
The first is obvious.
Even the second is obvious.
But the third factor isn’t as “in your face.” And learning how to identify it will make you a better investor as you look for stocks to buy and sell.
Let’s get into it…
The Ups and Downs
Looking at a chart of the price action of CVNA, BYND and W will show you the first two things they all have in common:
The chart above plots each stock from its initial public offering (IPO) to today.
All three experienced a big pop in their share prices at some point in time.
From a low of $29.35 in March 2020 to its all-time high in August 2021, Carvana stock jumped an incredible 1,131%.
Beyond Meat went from its post-IPO price of $65.75 in May 2019 to $234.90 in July 2019 — a 257% jump in just two months!
And Wayfair went from a low of $23.52 in March 2020 to a high of $342.40 in August 2020. That’s an increase of 1,355% in five months!
The chart also shows the second common trait for these stocks … massive drops following those impressive gains.
Wayfair fell 81% from its August 2020 high to today … Carvana tanked almost 87% from its high to today … and Beyond Meat dropped more than 95% from its all-time high!
Some investors who bought and held these stocks saw impressive, short-term gains. But that didn’t last.
And it’s the third thing these companies have in common that tells us why.
In Stocks … Quality Matters
Quality is one of the six factors we use in Adam O’Dell’s proprietary Green Zone Power Ratings system.
It measures a company’s profitability, margins, debt and cash flows to show how “healthy” it is.
Overall, our Quality factor is built on 27 individual metrics and boils it down to one simple number from 0 to 100.
It’s an effective way to filter out “junk” companies — or ones that we should steer clear of.
I’m picking on Carvana, Beyond Meat and Wayfair because they show low Quality in action. All three of these companies struggle with profitability. For reference, CVNA scores a 17 on the Quality factor, BYND scores a 12 and W scores a 4!
Wayfair has negative returns on assets and investments along with negative net and operating margins. It’s the same for Beyond Meat and Carvana:
These numbers show why these stocks had fast upswings, but just as fast downturns.
Investors bought hype and headlines but it was too good to be true.
I know two of these stocks have had strong runs this year, but they are still off their high points and the other shoe could drop at any time because they are still not profitable.
Quality helps us weed through the hype and headlines to uncover stocks that can not only grow, but weather market headwinds.
It’s why Quality is a key metric in Adam’s brand-new Infinite Momentum Alert. He uses Quality alongside Value and Momentum (and an AI-powered algorithm running in the background) to unlock unlimited potential by trading just 10 stocks every month.
The system is simple to follow and sticking to it produced massive results in back testing. Adam’s strategy obliterated the S&P 500 300-to-1 with 35% annualized gains since 1999.
The news is out on his Infinite Momentum Alert and now is the perfect time to get on board and realize the massive potential. Click here to find out more…
Bottom line: Stock charts can show you patterns and tell you how a stock has moved.
But quality is one way you can determine whether stocks can maintain big upswings or weather downturns in the market. As we see with Carvana, Beyond Meat and Wayfair, unprofitable, low-quality companies can’t do either.
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets