If you go bottom-fishing for value, you might get trapped. This is a harsh lesson that California-based Skillz (NYSE:SKLZ) is unintentionally teaching investors as SKLZ stock just keeps on printing fresh lows.
Now, this might sound appealing to value-focused investors. After all, you’re supposed to buy low and sell high, right?
Sure, if the stock represents a successful company with improving financials. Unfortunately, in that regard, SKLZ stock doesn’t fit the bill.
It would be a shame to see anyone invest his or her hard-earned money in a business with major fiscal issues. Ultimately, Skillz just isn’t a good choice for gaming-market exposure.
SKLZ Stock at a Glance
The fine folks at Reddit sure know how to pump up a stock when they set their minds to it. Oftentimes, however, they’ll abandon the stock in search of another shiny object in the markets.
This is, quite possibly, what happened with SKLZ stock. Early in 2021, social-media traders apparently propelled the stock to a peak of $46.30. Mind you, this is a stock that cost $10 per share just a few months prior to that crazy run-up.
As it turned out, the fast gains were essentially just a mirage — or at least, they were “transitory” (to borrow a word from Federal Reserve Chairman Jerome Powell).
It was a bad omen when SKLZ stock tumbled below $10 in November 2021. After that key level was breached, the sellers completely took over.
Heading into late February, the Skillz share price was below $3 and sinking fast. There are no meaningful support levels to speak of here, as the stock hasn’t demonstrated any ability to sustain a bounce.
From a technical standpoint, the damage is done and SKLZ stock should be left untouched.
The Time Has Passed
Investing in Skillz might have made more sense when the share price was climbing, but that was more than a year ago.
Back then, Covid-19 lockdowns forced many people to stay indoors. As a result, video games became a go-to pastime for folks who were bored and stuck at home.
What Skillz does, to put it simply, is host video-game tournaments. It’s a tough business to compete in, as there are plenty of e-gaming businesses out there.
As Covid-19 vaccines became more widely available, lockdowns and other restrictions were eased and people felt more comfortable going outdoors. Consequently, a number of growth stocks, including SKLZ stock, topped out and started to retrace downward.
The point is that Skillz had its time to shine. Reddit users were pumping up cheap stocks, and there was plenty of room for e-gaming companies to compete and thrive.
Going From Bad to Worse
That time has come and gone, so investors should move on to assets with better growth potential.
Think about it: Skillz finished off 2021 by offering $300 million worth of 10.25% senior secured notes. That’s an awful lot of debt for a company of this size, and of course Skillz will have to pay interest on that debt.
Is taking on a large debt load a good sign, or a bad omen? It will bring in some capital, but there’s a price to pay later on when a business starts racking up debt.
Then, there are the bottom-line financial issues. Specifically, in the fourth quarter of 2021, Skillz incurred a net earnings loss of $99 million. That’s significantly worse than the $67 million net loss from the prior-year period.
It doesn’t look much better when we extend the time frame. In full-year 2021, Skillz sustained a net earnings loss of $181.4 million. Again, the situation is only getting worse, as Skillz’s previous-year net loss was $145.5 million.
The Takeaway
Informed investors must adapt to changes in the markets. Skillz might have been a right-time, right-concept company at one point, but that was at least a year ago.
Today, it’s hard to find data points that would support a long position in SKLZ stock. The company has apparently been abandoned by the meme-stock traders, so fundamentals matter more than ever for Skillz now.
Unfortunately, Skillz doesn’t have the fundamentals to justify an investment. The company is losing money, and you can avoid losing your own money by picking a better stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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