🔒 Loss-making companies among world’s best stock market investments. See list!

Stock market analysts spend hours scrutinising financial reports, watch businesses closely and interview company managers, all with a view to using numbers to put a value on a publicly listed stock. But, as this excellent analysis underscores, there can be more art and mystery to successful investing than arithmetic and accounting. Companies like Tesla, founded by South Africa-born Elon Musk, are among the big US-listed companies that are generating returns for stock holders, yet on paper they’re not making a profit. – Jackie Cameron

By Thulasizwe Sithole

Forty-five money-losing companies have at least matched the S&P 1500’s 28% gain over the past year. That was highlighted by Philip van Doorn, investing columnist for Market Watch, who writes that monetary forces that have helped feed the bull market are so strong that scores of stocks have risen significantly over the past year even as the companies themselves have been losing money.

“In a Wall Street Journal article, James Mackintosh called Tesla and General Electric “the two most valuable loss-making companies,” after Tesla’s shares had doubled in three months and GE’s stock had risen 44%,” notes Doorn.

“The proportion of U.S.-listed companies losing money for three years reached its highest last year in data stretching back to the late 1990s,” Mackintosh wrote, citing data compiled by Andrew Lapthorne, global head of quantitative research at Société Générale.”

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With negative interest rates in Europe and Japan, and increasing stimulus by the US Federal Reserve, maybe investors shouldn’t be surprised that the S&P 500 Index has returned 26% over the past year. Investors see the US stock market as a haven, reckons Van Doorn.

“Tesla and GE provide contrasts when looking at money-losing companies whose stocks have soared. Tesla’s shares have risen after the electric-car maker reported a third-quarter profit, opened a China factory in the fourth quarter and enjoyed a spike in demand.

“A look at the broad US market, as represented by the Russell 3000, shows 808 companies that have negative earnings per share for the past four reported quarters combined. Of this group, 149 of the stocks have returned 50% or more over the past 12 months through Jan. 12, with dividends reinvested,” continues Van Doorn.

The investment fundi sorted the 211 loss-making companies among the S&P 1500, sorted by 12-month total returns:

“To be sure,” continues Van Doorn, “many of these stocks recovered from previous declines as investors became enthusiastic about management teams’ turnaround efforts. But some additional data may also point to reasons for investors’ confidence”.

His fascinating table includes sales-growth numbers as well as gross margins for the most recently reported quarter and the year-earlier quarter. “These might provide some insight into why these stocks have performed so well over the past year,” he explains.

“A company’s gross margin is its sales, less the cost of goods sold, divided by sales. It is a measure of pricing power. A narrowing margin might result from discounting or other efforts to increase or defend market share. A continually narrow margin might be a bad sign. An expending margin, especially when sales are growing, is a positive sign that a company is remaining competitive,” adds Van Doorn.