{"id":470193,"date":"2021-06-05T14:46:06","date_gmt":"2021-06-05T18:46:06","guid":{"rendered":"https:\/\/financhill.com\/blog\/?p=470193"},"modified":"2021-06-01T16:57:50","modified_gmt":"2021-06-01T20:57:50","slug":"what-are-zombie-stocks","status":"publish","type":"post","link":"https:\/\/financhill.com\/blog\/investing\/what-are-zombie-stocks","title":{"rendered":"What Are Zombie Stocks?"},"content":{"rendered":"

What Are Zombie Stocks?<\/em> Zombie stocks might sound scary. You will probably think they\u2019re even scarier once you know what they are. <\/span><\/p>\n

Despite their potential to eat your investment dollars \u2013 much like horror movie zombies like to eat brains \u2013 befriending the right zombie stocks could add significant opportunities to your portfolio.<\/span><\/p>\n

What Companies Are Zombie Companies? <\/span><\/h2>\n

Zombie companies do not have enough money to pay off their debt<\/strong>, but they have enough revenues to keep operating while servicing their debt obligations. You can think of them as households that only pay the minimum balance on their credit cards as they struggle to make ends meet. They\u2019re not starving or homeless. They just aren\u2019t going anywhere.<\/span><\/p>\n

Investors should take heed when they consider buying zombie stocks. Since the companies don\u2019t have any excess capital, it\u2019s unlikely that they will experience the financial growth needed to increase their share price levels.<\/span><\/p>\n

On the other hand, some zombie companies have been called \u201ctoo big to fail.\u201d The government has a history of bailing these companies out when they get into financial trouble. The bailout isn\u2019t always good for stock prices, but at least it prevents prices from reaching zero and it helps to keep people employed.<\/span><\/p>\n

How Do You Identify a Zombie Company?<\/span><\/h2>\n

Experts find that about 18% of companies listed in the Bloomberg Total Return Index probably count as zombie companies<\/a>. With that many scary investments out there, you need to know how to identify the walking dead.<\/span><\/p>\n

Before you invest in a company, look for signs like:<\/span><\/p>\n

    \n
  • Debt that grows from year to year.<\/span><\/strong><\/li>\n
  • Long research and development periods before releasing products.<\/span><\/strong><\/li>\n
  • Relying on capital from outside investors instead of generating revenues.<\/span><\/strong><\/li>\n<\/ul>\n

    You should be able to find this information in a company\u2019s financial statement. Publicly traded companies must release reports that show how they perform. You can typically find their reports online.<\/span><\/p>\n

    What Is An Example of A Zombie Company?<\/span><\/h2>\n

    There are a lot of zombie companies out there. Bed, Bath & Beyond (BBBY<\/a>)<\/strong> stands out as one most investors should stay away from. Why is it such a perilous zombie company?<\/span><\/p>\n