The right stocks can make you rich and change your life. The wrong ones, though, can do far more damage than simply underperforming. They can erode your wealth, eating away at your hard-earned profits. These are the stocks that act as pure portfolio poison, and while not all investors like to confront this reality, it’s essential to know when to walk away.
Here are three companies that investors should reconsider holding. If you own any of these “toxic stocks,” it may be time to sell.
Trump Media (DJT): Speculative and Overvalued
Trump Media (DJT) saw its stock tumble 18.3% last week, highlighting risks tied to a business reliant on speculation rather than fundamentals.
Key Issues:
- Momentum-Based Valuation: The stock has been trading like a meme stock, with sharp moves driven by sentiment rather than business performance.
- Low Revenue: The company generated just $1.61 million over three quarters, which is difficult to justify against its $7.1 billion market cap.
- Weak User Engagement: Truth Social’s lackluster performance in user activity and monetization raises further doubts about the business model.
Outlook:
Without a clear path to profitability or substantial revenue growth, Trump Media is a highly volatile and speculative play best avoided.
Rigetti Computing (RGTI): Cash Burn and Overvaluation
Rigetti Computing (RGTI) has dropped 50% from recent highs, but its financial and operational challenges suggest it’s not a buy-the-dip opportunity.
Key Issues:
- Overvaluation: Despite the drop, Rigetti still trades at a staggering price-to-sales ratio of 234, with a $2.8 billion market cap.
- Minimal Revenue: The company generated just $12 million in revenue over the past year, signaling inconsistent demand.
- High Burn Rate: Rigetti is burning $60 million annually while holding only $20 million in cash, raising significant liquidity concerns.
Outlook:
With quantum computing still decades away from widespread adoption, Rigetti’s financial situation makes it a high-risk stock for investors.
Workiva (WK): Regulatory Risks Create Uncertainty
Workiva (WK) experienced a sharp sell-off last week, driven by concerns about potential changes to EU sustainability reporting standards.
Key Issues:
- Regulatory Uncertainty: The EU may ease sustainability reporting requirements, which could reduce demand for Workiva’s platform.
- Reliance on CSRD: The Corporate Sustainability Reporting Directive has been a key driver of growth, but changes to it could lead to revenue shortfalls.
- Market Volatility: The stock’s recent decline highlights the risks of relying heavily on evolving government policies.
Outlook:
Until there’s more clarity on how potential regulatory changes will impact its growth, Workiva remains a risky hold for investors seeking stability.