According to market cap as a percent of M2 money supply, U.S. stock markets look more overvalued than ever. It’s hard to see how the market climbs much higher from here. Now is the time to be discerning in capital allocation decisions.

Recent years have highlighted how quickly speculative names, such as meme stocks, can surge before experiencing sharp reversals. It is not just possible, but increasingly likely, that other overextended stocks could face similar corrections.

Our Danger Zone research identifies these landmine stocks so you can avoid them with confidence.

This week’s Danger Zone pick is a company that’s selling off assets to keep its business alive, while the stock price implies an improbably profitable future.

Below is a free excerpt from our latest Danger Zone report, published today to Pro and Institutional members. You can buy the full report a la carte here.

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This stock could fall further based on:

  • declining revenue and profits,
  • persistently high expenses,
  • profitability below peers,
  • falling economic earnings and weak balance sheet, and
  • a stock valuation that implies this company will double its margins while also growing revenue at dramatic rates.

Growth Has Stopped

This company’s revenue fell year-over-year (YoY) in 2024 and in the trailing-twelve-months (TTM) ended 2Q25. After peaking at $1.7 billion in 2023, revenue sits at $1.5 billion in the TTM.

This worrisome trend continues to the company’s bottom-line, where the company’s net operating profit after tax (NOPAT) has fallen from $117 million in 2022 to $36 million in the TTM.

The company’s NOPAT margin fell from 9% in 2019 to 2% in the TTM, while the company’s invested capital turns rose from 0.3 to 0.5 over the same time. Rising invested capital turns aren’t enough to offset falling NOPAT margins, which drive the company’s return on invested capital (ROIC) from 3% in 2019 to 1% in the TTM.

Following the same trend, the company’s Core Earnings, a proven superior earnings measure that excludes unusual gains/losses, fell from $47 million in 2022 to -$34 million in the TTM.

Figure 1: Revenue & NOPAT: 2019 – TTM

Sources: New Constructs, LLC and company filings

Misleading Cash Flow and Falling Economic Earnings

This company’s free cash flow (FCF) was positive in both 2024 and the TTM, after three years of negative FCF. However, positive FCF isn’t a result of growing profits or improving operations, but from selling off assets.

The company’s invested capital fell $293 million YoY in 2024 and $193 million YoY in the TTM ended 2Q25. The company’s total adjusted fixed assets fell by $291 million and $191 million YoY in 2024 and the TTM ended 2Q25, respectively. In other words, nearly all the decline in invested capital is attributable to the company selling off assets, which drove positive FCF in those periods.

Selling off assets cannot sustain a business like this company, which is one of the many reasons this stock could fall all the way to $0/share. We note that this company doesn’t qualify as a Zombie Stock due to its, albeit barely, positive interest coverage ratio and FCF.

Additionally, this company hasn’t generated positive economic earnings, the true cash flows of the business, in any annual or quarterly period in our company model, which dates back to 2019. Economic Earnings capture changes to the balance sheet, the income statement, and footnotes. In this company’s case, economic earnings paint a more realistic picture of the company’s cash flows.

The company’s economic earnings fell from -$71 million in 2019 to -$161 million in the TTM. See Figure 2.

Figure 2: Economic Earnings: 2019 – TTM

Sources: New Constructs, LLC and company filings

Diluting Shareholders, Too

This company’s shares outstanding increased YoY every year since 2021. Per Figure 6, the company’s shares outstanding increased from 148 million in 2021 to 170 million in 2Q25.

Figure 3: Shares Outstanding: 2021 – 2Q25

Sources: New Constructs, LLC and company filings

…there’s much more in the full report. You can buy the report a la carte here.

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