These 'Basement-Dwelling Kids' Can Ruin Your Returns

As parents, we spend many years handholding our children... After all, they're not expected to know everything. And they're not expected to do a whole heck of a lot either – at least, not at first. [Chaikin PowerFeed]( These 'Basement-Dwelling Kids' Can Ruin Your Returns By Marc Gerstein, director of research, Chaikin Analytics As parents, we spend many years handholding our children... After all, they're not expected to know everything. And they're not expected to do a whole heck of a lot either – at least, not at first. But we do all that with one important expectation in mind... Eventually, we expect our children to grow into fully functioning adults. We expect them to "launch." We do the same thing as investors, too. Think about the handholding and leeway we give so-called "growth stocks"... Often, like our kids, those companies haven't launched yet. They're still taking steps toward becoming fully functioning businesses. Of course, losses at these types of companies tend to be the rule, not an exception. It takes time for a new business to get off the ground... Fixed costs exist from day one. But it can take years for new – and especially "disruptive" – businesses to generate enough revenue to at least cover those expenses... During that period, these companies often burn through a lot of cash. As a result, they need to cover their needs with outside capital (debt, venture capital, publicly traded shares of stock, or a combination of those things). But the thing is... some of these companies never grow up. What happens then? Do you want the equivalent of a video-game-playing grown-up living in your portfolio rent-free? Heck no! It's one thing to give your kids an extra year at home. But you don't want them living in your basement forever. And it's the same thing with these "failure to launch" companies... Recommended Links: [Read this BEFORE buying any oil stocks]( Billionaire investors like Warren Buffett, Carl Icahn, and George Soros are pouring money into oil stocks. But according to one top analyst, the secret to investing in oil right now is NOT by buying a driller, explorer, or ETF. [Instead, learn the oil strategy that could have made you "20X" your money right here](. ['This Is Tesla Meets Uber']( This could be the most radical UPGRADE in transportation ever. It could be bigger than Uber, Tesla, or even the steam engine! And as Matt McCall explains, this little-known opportunity could help you cash in on a potential $19 TRILLION trend. [Click here for the full story](. Put simply, failure-to-launch companies are duds. And importantly, they all share a specific attribute. It makes them darn risky for investors... They can't survive if the capital markets lose confidence. Think about it... In bad times, investors flee from businesses that look like they'll never get off the ground. And when that happens, collapse is nearly guaranteed. Fortunately, one metric can help us differentiate between genuine up-and-coming growth companies and failure-to-launch duds... I'm talking about "operating margin." This metric focuses on the company's ability to generate enough revenue to meet the essential costs of staying in business. By that, we're referring to things like paying employees, paying for facilities, buying supplies or inventories, and more. Importantly, negative operating margins are a red flag to help us spot potential duds. That's especially true when those margins aren't improving. For example, look at Teladoc Health's (TDOC) operating margins over the past seven years... [Chaikin PowerFeed] Now, as an investor, I could live with Teladoc's negative operating margin in the early years. It isn't unusual for companies to burn a lot of cash in their early days. But these companies should still show enough forward progress to satisfy the capital markets. However, Teladoc isn't doing that. Its revenue jumped 369% from the 12 months ending on May 31, 2019, through the present. And yet, the company is hardly making any progress with operating margins. That's alarming. It's as if our kid tried walking on his or her own, fell down on the carpet... and then just gave up. Readers with access to our Chaikin Analytics platform can use a quick hack to spot this kind of danger... In addition to Power Gauge scores, our platform also provides several other pieces of data for every stock. A couple of those items are "P/E" (which is price divided by the estimate of next year's earnings per share) and "ROE" (five-year average return on equity). If both numbers are negative, there's a good chance that the company's operating margins are unacceptable. It's your money. Be demanding. Don't let these basement-dwelling kids wreck your returns. With all that said, sometimes it's OK to own shares of companies like this. I'll explain what I mean tomorrow morning. Good investing, Marc Gerstein Market View Major Indexes and Notable Sectors # Hld: Bullish Neutral Bearish Dow 30 +0.03% 6 20 4 S&P 500 +0.30% 91 302 104 Nasdaq +0.33% 10 63 26 Small Caps +0.46% 319 1058 512 Bonds -1.84% — According to the Chaikin Power Bar, Small Cap stocks and Large Cap stocks are somewhat Bearish. Major indexes are mixed. * * * * Top Movers Gainers [rating] SWK +5.78% [rating] GNRC +5.75% [rating] ENPH +5.41% [rating] MPC +3.57% [rating] ETSY +3.52% Losers [rating] WBD -3.71% [rating] REGN -3.38% [rating] EQR -2.92% [rating] UDR -2.91% [rating] SCHW -2.87% * * * * Earnings Report Reporting Today Rating Before Open After Close SJM CASY GWRE, SMAR No earnings reporting today. Earnings Surprises [rating] COUP Coupa Software Incorporated Q1 $0.19 Beat by $0.14 [rating] SAIC Science Applications International Corporation Q1 $1.88 Beat by $0.11 [rating] HQY HealthEquity, Inc. Q1 $0.27 Beat by $0.01 * * * * Sector Tracker Sector movement over the last 5 days Energy +1.04% Industrials +0.50% Discretionary +0.50% Materials +0.15% Communication -0.50% Utilities -0.92% Information Technology -1.03% Staples -1.53% Financial -1.69% Real Estate -2.48% Health Care -3.12% * * * * Industry Focus Regional Banking Services 11 106 21 Over the past 6 months, the Regional Banking subsector (KRE) has outperformed the S&P 500 by +0.65%. However, its Power Bar ratio, which measures future potential, is Weak, with more Bearish than Bullish stocks. It is currently ranked #9 of 21 subsectors and has moved up 1 slot over the past week. Indicative Stocks [rating] LKFN Lakeland Financial C [rating] TBK Triumph Bancorp, Inc [rating] VBTX Veritex Holdings, In * * * * You have received this e-mail as part of your subscription to PowerFeed. If you no longer want to receive e-mails from PowerFeed, [click here](. You’re receiving this e-mail at {EMAIL}. For questions about your account or to speak with customer service, call [+1 (877) 697-6783 (U.S.)](tel:18776976783), 9 a.m. - 5 p.m. Eastern time or e-mail info@chaikinanalytics.com. Please note: The law prohibits us from giving personalized investment advice. © 2022 Chaikin Analytics, LLC. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Chaikin Analytics, LLC. 201 King Of Prussia Rd., Suite 650, Radnor, PA 19087. [www.chaikinanalytics.com.]( Any brokers mentioned constitute a partial list of available brokers and is for your information only. 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