When does a growth stock become one of the top growth stocks to avoid?
It sounds like the beginning of a riddle or a bad joke, but the answer is obvious – it’s when the stock is deceptive and tricks you into believing that it can be a good buy. You look at the Portfolio Grader and get interested because a stock has a good grade specifically for growth, but then realize that it still has an “F” rating overall.
How can that happen?
The Portfolio Grader rates stocks based on earnings history, growth, analyst sentiment and momentum. The growth grade in particular is a popular metric for finding growth stocks to avoid.
But it’s also important to see why a company is getting a good growth grade. Because sometimes, looking at a single factor like growth can be misleading and can’t make up for the company’s deficiencies in other areas.
Today, we’re going to look at several companies that have good growth grades, and we’ll investigate why that’s happening in each case. But then we’ll pull back the curtain, look at the fuller picture, and explore why these growth stocks to avoid are still getting “F” grades overall.
In the end, an exercise like this is a good reminder to not rely on any one metric when considering your stock portfolio. Growth is highly desirable, but the growth stocks to avoid on this list can easily drag your portfolio into the gutter.
Virgin Galactic (SPCE)
It makes sense to jump right into one of the growth stocks to avoid that’s been a huge disappointment – and has cost plenty of investors a lot of money along the way.
Virgin Galactic (NYSE:SPCE) made its name in the billionaire space race as founder Richard Branson competed with SpaceX and Blue Orgin to see which would be the first to make it into space with a civilian crew.
You may remember that Virgin Galactic won that race, as it shot Branson into suborbital flight just a few days before Jeff Bezos did the same on a Blue Orgin rocket.
But honestly, that’s the high point for this company. Space tourism doesn’t feel any closer today than it did several years ago, and few people have the several hundred thousand dollars it takes to make the trip, even if the flights become a reality.
Virgin Galactic has burned through more than $1 billion in the last two years and rewarded investors with a 93% fall in stock price. SPCE recently completed a 1-for-20 reverse stock split to push the price back over the Nasdaq threshold and maintain listing compliance, but the reality is that this is a bad stock and a weak company.
SPCE stock shows an “A” rating for growth in the Portfolio Grader because its revenue was up 410% in the last quarter. But sales of only $1.99 million show that people aren’t lining up to ride a Delta rocket into space as early as 2026, which is the company’s latest projections.
SPCE stock gets an “F” rating overall in the Portfolio Grader.
Helius Medical Technologies (HSDT)
Helius Medical Technologies (NASDAQ:HSDT) is a neurotech company headquartered in eastern Pennsylvania. The company makes medical devices that help people with balance and gait issues without getting a neurological implant. It is also one of the growth stocks to avoid in the space.
The company’s devices improve the brain’s ability to compensate for deficiencies and rehabilitate lost brain function. For instance, its Portable Neuromodulation Stimulator stimulates the brain through nerves in the tongue.
It’s being used as a short-term treatment to help people with multiple sclerosis symptoms. But it’s an expensive device, priced at more than $23,000.
The company saw revenue grow in the first quarter, giving it a decent growth grade in the Portfolio Grader. But we’re still not looking at a lot of money. Revenue in the first quarter was $135,000, versus $111,000 in the same quarter a year ago.
It posted a net loss of $2.5 million, the same as a year ago. The earnings per share loss of $3.08 was better than the loss of $4.22 per share from Q1 2023.
HSDT stock is down 87% this year. It has an “A” rating for growth but an “F” rating overall in the Portfolio Grader.
InMed Pharmaceuticals (INM)
InMed Pharmaceuticals (NASDAQ:INM) is a Canadian company that is a clinical-stage pharmaceutical company that’s working to develop cannabis-infused treatments for Alzheimer’s disease, vision and skin conditions.
The company is attempting to develop an effective pipeline of drug candidates targeting CB1 and CB2 receptors.
Its attempt to develop an anti-itch skin cream is in Phase 2 testing, and it is seeking a partnership to help it develop the product. Its other pipeline candidates for Alzheimer’s and dry age-related macular degeneration are in preclinical trials.
Developing new therapies is an expensive undertaking and a challenge for investors because the company has to spend a lot of cash on research and development without seeing income for years, if ever.
For the third fiscal quarter of 2024 (ending March 31), InMed reported a net loss of $5.7 million. The company saw sales of $1.1 million, up slightly from a year ago, and a gross profit of $289,000, which was better than its profit of $192,511 in the same quarter a year ago.
The profit increase helps InMed’s growth grade in the Portfolio Grader. Still, the company also acknowledges that it has money only to finance research and development into the fourth calendar quarter of 2024. That is a worrisome disclosure.
INM stock gets a “B” rating for growth but an “F” rating overall in the Portfolio Grader. The stock is down 36% this year.
P3 Health Partners (PIII)
P3 Health Partners (NASDAQ:PIII) is a health management company that supports providers with administrative services and coordination for their Medicare Advantage patients.
The company currently operates in Arizona, Oregon, Nevada, Florida and California, with a network of more than 2,900 primary care providers.
It recently announced raising $42.2 million through the sale of 67.4 million units of stock with institutional investors, valued at just over 62 cents per share. That will give the company an infusion of cash to operate, but it also serves to dilute the share base.
First-quarter financial results included $388.5 million in revenue, up 29% from a year ago. But gross profits fell from $16.5 million to $6.4 million, and the company reported a net loss of $49.6 million.
PIII is among the growth stocks to avoid in part because it is down 62% this year. It gets an “A” rating for growth, but still has an “F” rating overall in the Portfolio Grader.
Sunshine Biopharma (SBFM)
Sunshine Biopharma (NASDAQ:SBFM) is a Florida-based biopharma company developing potential treatments in oncology and antivirals.
Thanks to its ownership of a Canadian pharmacy, Nora Pharma, which distributes generic medications, Sunshine was able to show sales of $7.5 million in the first quarter, a gain from $4.8 million a year ago. That gives it a solid grade for growth in the Portfolio Grader.
However, Sunshine is a long path to ever bringing its own drugs to market, and that’s where the real money is made. Sunshine is currently testing a Covid-19 treatment in mice at the University of Arizona in hopes of developing a treatment for patients who cannot use Paxlovid, Molnupiravir or Remdisivir.
It has a second drug candidate, to treat cancer, ready for testing on mice as well. However, the company’s third drug candidate, also a cancer drug, is on hold after lab tests did not yield a favorable result.
The Nora Pharma sales weren’t enough to help Sunshine generate a profit for the quarter, either. It posted a net loss of $1.2 million versus a loss of $1.7 million in the first quarter of 2023.
SBFM stock is down 98% this year. It gets an “A” rating for growth but an “F” rating overall in the Portfolio Grader.
MicroVision (MVIS)
With more vehicles on the road these days than ever, the advances in driver-assisted technology are pretty interesting. MicroVision (NASDAQ:MVIS) makes automotive lidar sensors to help driver-assistance systems and autonomous vehicles function.
The company’s sensors are also used in industrial, smart infrastructure and robotics.
It gets a good grade for growth in the Portfolio Grader because the company increased its revenue in the first quarter, bringing in $956,000 versus $782,000 in the first quarter of 2023. That’s a healthy percentage increase that helps give it an “A” grade for growth.
But then look closer. MicroVision lost $26.3 million in the quarter, versus a loss of $19 million in the same quarter a year ago. When you’re losing that much money, an $174,000 increase in revenue doesn’t help that much.
MVIS stock is down 59% this year. Despite its “A” grade for growth, MicroVision gets an “F” rating overall in the Portfolio Grader.
Predictive Oncology (POAI)
Predictive Oncology (NASDAQ:POAI) is working to harness the power of artificial intelligence to help bring drugs to market. The company believes that AI can help reduce the time it takes to successfully test and manufacture a drug, and is working specifically on cancer therapies.
The company has a biobank of 150,000 tumor tissue samples and uses machine learning to help it test and discover successful molecules. It also uses AI for drug development and for clinical trials.
And it saw an uptick in revenue in the first quarter, bringing in $419,000 versus $239,000 in the first quarter of 2023.
But the company also posted a loss of $4.2 million and $1.04 per share, versus a loss of $3.4 million and 86 cents per share in the same quarter a year ago.
That’s why POAI stock is getting an “A” rating for growth but an “F” rating overall in the Portfolio Grader. The stock is down 67% this year.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.