Red Flags: What's Driving Investor Caution With AMC, GRPN, and LCID This Week?

The stock market appears to be regaining ground from the October slump, with noted gains in the S&P 500 and Nasdaq since the onset of November. However, while some stocks have displayed a rally, their stability remains questionable amid the Federal Reserve’s mixed signals.

Signs of a soft landing are emerging in the U.S. economy. A slowing job growth rate and reduced inflationary pressure inspired investor confidence that the Fed may refrain from further interest rate hikes and potentially consider cutting rates sooner.

Nevertheless, the market continues to grapple with volatility due to high interest rates and the daunting $33 trillion national debt posing a potential threat to the U.S. economy. Consequently, specific stocks could face increasingly volatile conditions moving forward.

This year's broad rally has not been all-inclusive, as certain equities have struggled. Despite performing well amid individual company challenges and lofty valuations, several stocks may lose their steady performance status should macro conditions deteriorate instead of improving.

In particular, Lucid Group, Inc. (LCID), AMC Entertainment Holdings, Inc. (AMC), and Groupon, Inc. (GRPN) are raising concerns among investors. Let’s delve into an in-depth analysis of this caution and what has tagged these stocks as potential red flags.

Lucid Group, Inc. (LCID)

Luxury EV maker LCID has gained considerable attention following Riyadh Air's announcement of a signed MOU with the former. This pivotal partnership is designed to encompass a range of operational, commercial, and marketing collaborations projected to heighten LCID's industry prominence significantly.

Further emphasizing its market strategy, LCID announced its adoption of Tesla’s North American Charging Standard (NACS), bolstering its customer service efforts by offering increased access to reliable and convenient vehicle charging solutions.

Despite LCID's promising potential in the burgeoning EV industry, its disappointing third-quarter financial results have exercised investor caution due to substantial shortfalls in revenue and production forecasts.

With $137.81 million in revenue in the third quarter, denoting a 29.5% year-over-year decrease, it marks four consecutive quarters when the company failed to meet market estimates. Its losses have also steadily accrued over the year. It burned through $630.89 million in the third quarter alone, amassing an annual total exceeding $2.17 billion.

The additional concern stems from significant production figures falling behind. It produced 1,550 vehicles during the quarter, representing a 32.1% year-on-year drop, signifying their lowest output figures since the company's inception. Furthermore, its Q3 deliveries of 1,457 Lucid Airs reflect a meager 4.2% increase from the prior year. This figure parallels its Q1 and Q2 metrics, generating concern amid typical expectations for escalating EV sales, particularly for startups commencing from a lower base.

Gradual delivery growth and loss escalation have raised significant questions surrounding LCID's profitability. The company has grappled with production increment challenges and slower-than-projected delivery growth, resulting in a revision of the previous sales outlook.

Initially, LCID projected a production forecast of 10,000 to 14,000 cars this year. Recent developments have led executive expectations to a more modest 8,000 to 8,500 units.

LCID shares experienced an approximate 10% decline after releasing less-than-ideal third-quarter results and decreased annual production guidance. Over the past year, it has lost 65.9%.

The company is projected to confront a slew of challenges in its trajectory. As a capital-intensive venture, it works assiduously to escalate its production efforts. As of September 30, 2023, its liquidity, including cash and short-term investments, was valued at $4.42 billion, marking a decline from the $5.25 billion as of June 30, 2023. Saudi Arabia contributed a significant proportion of this capital.

Despite the substantial backlog of orders from Saudi Arabia, a positive factor for LCID, the hefty price tags attached to its cars restrict widespread affordability. As per the company's website, the least expensive vehicle retails at $75,000, escalating to $250,000 for the most expensive model.

Adding to its woes, the preference for trucks over sedans among many Americans further impairs LCID’s efforts to expand operations and capture greater market share over time. Subsequently, excluding orders from Saudi Arabia, LCID also grapples with potential demand issues. Given the fiercely competitive nature of the American market, carving out a substantial niche would pose formidable challenges.

AMC Entertainment Holdings, Inc. (AMC)

AMC, engaged in the theatrical exhibition business, is grappling with ongoing financial pressure amid an upsurge in its debt load and ponderous liquidity management. In September, the company closed an at-the-market equity offering, amassing approximately $325.5 million following the sale of 40 million shares at an average price of $8.14 per share.

Less than a month preceding this, AMC underwent a 1-for-10 reverse stock split to bolster its capital. Following two consecutive quarters of profitability, as of September 30, 2023, the company's cash holdings totaled $729.70 million.

AMC has embarked on another stock sale as a lifeline to sourcing necessary funds. It plans to funnel $350 million of its Class A shares in an “at the market offering.” The achieved funds would be used to enhance liquidity and manage existing debt, along with funding general corporate operations.

However, AMC’s stock plunged over 88% over the past year. A significant drop of roughly 20% was observed upon publicizing its third-quarter earnings. The earnings report was not necessarily bad, as revenues increased 45.2% year-over-year to $1.41 billion, reaping net earnings of $12.3 million – a feat driven by robust theatrical attendance for Barbie and Oppenheimer. The $350 million stock sale announcement shook investors and incited a sell-off, driving share prices below the $9 mark.

Although the company seeks to fortify its balance sheet through additional funding, forecasts do not anticipate a return to a surplus working capital soon. As of September 30, 2023, AMC's working capital deficit was $549 million, compared to the deficit of nearly $847 million as of June 30, 2023.

The third-quarter raise of over $325 million resulted in a modest improvement in the working capital balance of $298 million for the quarter. Consequently, AMC's fresh plans for equity sales may be inadequate in bridging the company’s capital gap, suggesting a need for further funds in the near term.

Moreover, AMC's working capital will likely remain negative as the cash influx will be directed towards debt repayment, potentially sparking further equity sales.

Despite making a recovery from the pandemic lows, AMC's current performance still falls short of ensuring long-term viability. Future equity sales could be on the horizon, and each presumably more dilutive than the last, particularly as the stock teeters near its all-time low levels.

Groupon, Inc. (GRPN)

GRPN has yet to achieve profitability. For the fiscal third quarter that ended September 30, 2023, its revenue declined 12.4% year-over-year to $126.47 million, while net loss attributable to GRPN came at $41.36 million or $1.31 per share.

Despite experiencing a surge over the past year, GRPN’s shares took a hit in October due to an unfavorable response to an announcement regarding an asset sale. Consequently, it is anticipated that the share price might continue to plummet.

As of September 30, 2023, the company’s working capital deficit stood at $158.06 million, slightly improving from $171.82 million as of June 30, 2023. Given its negative working capital, the company needs to secure funding to ensure survival and additional capital to facilitate a turnaround. This could potentially imply future dilution of shareholder value.

GRPN shares tumbled over 35% after announcing a new rights offering and the firm’s recognition of "challenged" business conditions. The board has approved an $80 million fully underwritten rights issue extended to all holders of its common stock. This will be done via non-transferable subscription rights to purchase common stock at $11.30 a share.

Currently, as GRPN’s share has dwindled to trade at $9.61 per share, it seems improbable that investors would be willing to purchase shares at the company’s set price of $11.30 – leaving the CEO and board members to foot the bill for this $80 million investment.

Looking ahead, for the fourth quarter of 2023, the company anticipates revenues to fall within the range of $127.5 million to $137.5 million, signifying a decline of 14% to 7% year-over-year. Furthermore, adjusted EBITDA is expected to be between $18 million and $25 million. The company’s pessimistic sentiment about revenue has spooked investors, leading to stock sell-offs.