Morningstar portfolio strategist Amy Arnott reports in a new blog post on a recent exercise in which she identified 15 stocks that eroded, rather than created, the most shareholder valued over the 2015-to-2024 period.
She searched Morningstar’s U.S. equity database for companies with the biggest declines in market capitalization, which she said reflects the current stock price multiplied by total shares outstanding over the same period. She then added back the total value of dividends paid and stock spinoffs, which partially offset market-cap declines, in order to more accurately assess value destruction.
She found that the value-destroying stocks erased some $371 billion in shareholder wealth over the past 10 years. In contrast, the top 15 stocks on the positive side created an estimated $21 trillion in wealth.
Arnott said this reflects, first, that companies with outstanding financial results and share-price performance can surpass their competitors over many years. Winning stocks can have upside potential far in excess of their initial value.
Second, although the chances of experiencing a loss in any individual stock are relatively high, value destruction can be limited if a stock never reaches a large market cap to begin with.
Arnott said that while the 15 value destroyers are an assortment of industries, sectors and underlying problems, many share a common thread: a lack of economic moat, or sustainable competitive advantage. Eleven companies on the list have no economic moat, while three have a narrow one.
Just one company currently has a Morningstar economic moat rating of wide. She noted that 12 of 15 wealth creators have wide economic moats based on Morningstar analysts’ assessments.
Another common factor among the 15 wealth destroyers is deteriorating fundamentals. Several suffered declining revenue, operating income and/or free cash flow over the past 10 years. Investors responded to these worsening metrics by bidding down the stock prices.
See the gallery for Arnott’s list of the 15 stocks that destroyed the most shareholder wealth over the past decade.
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