3 Fragile Stocks at High Risk of Going Bankrupt

The Air Canada stock, Aurora Cannabis stock, and Baytex Energy stock are in technical bankruptcies already. The companies might declare financial insolvency soon due to the impact of COVID-19.

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A country’s flag carrier, a leading cannabis producer, and a nearly three-decade-old energy firm are at high risk of going under. The situations of these companies are so fragile that bankruptcy is knocking at their doors.

No wings to fly

The world’s major airlines, including Air Canada (TSX:AC), are heading to bankruptcy unless there is a bailout. Without the aid, Canada’s flag carrier is might be insolvent by the first half of 2020.

Air Canada was the first airline company to offer the summer seat sale back in 1982. The deep discounts were unprecedented given that it was the peak summer travel period. Both the travel market and economic environment were distressing then. Today, Air Canada is grounded.

The company is swamped by cash refund requests due to travel bans. Complaints are piling up, too. Its economic viability is under threat. Also, it’s uncertain when air travel will return to normal, if ever it will.

With operations and seat capacity down 90%, Air Canada must receive assistance. High financial and operating leverages are not good signs at all. No less than government intervention is required at this point.

Cultivation is on hold

Aurora Cannabis (TSX:ACB)(NYSE:ACB) has very little room to wiggle. This $1.24 billion cannabis producer might run out of cash and declare financial insolvency by year-end or even earlier.

After burning nearly $100 million in the most recent quarter, Aurora’s cash on hand is down to only $250 million as of March 31, 2020. The company needs a fresh capital infusion, or else its cultivation capacity as well as its extensive global footprint will be lost forever.

The board of directors approved a consolidation of shares on a 12-to-1 basis to be effective on May 11, 2020. However, this reverse stock split would mean a reduction of over 1.31 billion common shares outstanding to a paltry 109.4 million shares.

Aurora Cannabis’s move is necessary after receiving notice from the NYSE regarding non-compliance. Since the share price fell below an average of US$1 for 30 consecutive trading days, the company faces delisting from the exchange.

Transformation stalled

Baytex Energy (TSX:BTE)(NYSE:BTE) has the same predicament as Aurora Cannabis. Delisting from the NYSE is a strong possibility, since the stock’s performance is similar to that of the weed stock. Baytex has been a publicly listed company for 25 years.

The delisting will proceed if, within six months from receipt of the NYSE notification (March 24, 2020), Baytex’s common shares have a closing price on the last trading day of any calendar month and a concurrent 30 trading day average closing price of at least US$1 per share.

Baytex’s business operations will not stop with the non-compliance to the NYSE’s price listing standard.  The listing and trading of its common shares on the TSX will continue.

The pandemic and oil price war triggered a sharp drop in Baytex’s price. The stock is down $0.38 per share, as of this writing, or a year-to-date loss of 79.7%. Its market capitalization stands at $210.25 million. The market crash erased the exceptional business performance of Baytex Energy in 2019.

Collateral damage

Air Canada, Aurora Cannabis, and Baytex Energy are in the first batch of collateral damage in the pandemic. There might be the next wave of possible bankruptcies

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

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