Overvalued at Any Price
Our analysts peg the fair value of these firms at $0.
Although the market has been looking up over the past several weeks, a rising tide can't lift your boat if it's sprung a leak. Bear markets can be trying times for all sort of firms, but those that were facing company-specific risks or that were already grappling with secular headwinds may struggle mightily. In cases where we think these firms are facing virtually insurmountable odds, our analysts will assign the stocks a $0 fair value estimate--which results in an automatic 1-star rating.
In plain English, such a rating translates to "Consider Selling," so current shareholders of these firms at least know where we stand. But what should other investors make of a $0 fair value estimate? First, it's important to note that many of these firms have valuable assets, and they may continue to operate in some form even after a bankruptcy filing--but large debt loads mean that common stakeholders will likely be left with nothing.
Despite the negative outlook, we wouldn't recommend shorting these stocks, as Morningstar analyst Matt Coffina pointed out in a related article in December. In many cases, the share prices have already fallen near zero, leaving little upside and potentially infinite downside. And put options are rarely available at a strike price that would make them worthwhile.
Rachel Haig does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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