Goldman Sachs, with the razor-sharp precision that financial institutions are known for, has identified a significant correlation between the plummeting valuations of unprofitable growth stocks and the prevailing interest rate climate. Described by strategist David Kostin as having “long duration cash flows,” these unprofitable stocks face more daunting challenges when the discount rate experiences an upswing – a conundrum that more stable stocks don’t navigate.
The Struggle of the Unprofitable Stocks
Kostin, with a steady hand on the financial compass, points out that companies dependent on future cash flows face an uphill battle due to the potential impact of rising interest rates – making it clearer why many in the market have encountered recent stumbling blocks. He articulates that the timing of capital raising for these firms often coincides with an environment of higher capital costs, creating a precarious situation where sustainability is often a question mark.
A Window into the Abyss
Goldman Sachs projects a scenario where unprofitable companies are at risk of diminished market value unless they can exhibit a clear path to profitability in the immediate future. The forecasts paint a stark picture, forecasting a landscape where interest rates remain high, thus leaving vulnerable companies with stagnant growth potential without a lifeline in sight.
The Silver Lining: A Glimpse into the Future
In light of these findings, Goldman Sachs put together a curated list of 21 growth stocks from the Russell 3000 that fit a particular profile – companies projected to transition to profitability by 2024 or 2025 and are currently trading at an EV/Sales ratio of less than 5x. This curated list offers investors a potential beacon of hope in an otherwise tumultuous sea of uncertainties.
Meet the Underdogs
Among the selected few are promising entities such as Cipher Mining (CIFR) with an estimated 2025 sales growth of 84%, Indie Semiconductor (INDI) at 48%, and TeraWulf (WULF) also at 48%. These companies, while currently swimming in the unprofitable pool, are projected to make a significant splash in the realm of profitability over the next few years.
