AMC Entertainment is the figurehead
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Money-losing companies flood the market with new stocks – and risk-hungry investors buy them.
About 1,000 in the last 12 months Companies issued secondary or add-on stocks in the U.S. and nearly 750 of them made no profits, according to SentimenTrader’s Jason Goepfert, citing Bloomberg data.
The change has taken place since the financial crisis. Previously, with the exception of the dot-com bubble in the late 1990s, there were more profitable companies raising money in the secondary market than those losing money.
What drove the change was the public market itself. Wall Street became more tolerant of negative earnings and instead focused on the growth prospects. The number of unprofitable money-raising firms began to grow until it eventually outnumbered the profitable ones. Then the gap got bigger and bigger.
Still, the profitable firms – usually larger and more established companies – could raise more money than their unprofitable counterparts. However, that void has narrowed, and the unprofitable took power last year.
The money losers have raised $ 27 billion more than the money makers since last June – something that has not been seen in at least 40 years and even exceeded the gap during the dot-com bubble.
That’s only a tiny amount compared to the entire US stock market, but still worth a mention. “It’s not about the level of emissions,” wrote Goepfert, “but about a market environment that allows this.”
For more than six months, the market has been in what Goepfert calls the “enthusiasm phase” of a sentiment cycle. The characteristics of this phase include high optimism, low creditworthiness, a rush of first and second issues, outperformance of risky stocks and excessive valuations.
“We have to look out for internal divergences and warnings in the technical indicators during and after these phases,” wrote Goepfert.
The frenzied activity of issuing and buying shares supports the lifeline of many companies that would otherwise have perished long ago.
A figurehead is
(Ticker: AMC). The movie theater chain was on the verge of bankruptcy during the pandemic but came back this spring when Reddit investors pushed their stock up, allowing the company to issue more new shares. Meme stock is up 2.642% since the start of the year.
Write to Evie Liu at [email protected]