As Stocks Hit New Highs, Money-Losing Companies Mushroom

The number of loss-making companies in the U.S. has bloated to 40% over the last 12 months, the “highest level since the late 1990s of post-recession periods,” says a recent article in The Wall Street Journal.

The article cites Tesla as the biggest of the loss makers, noting that its share price doubled within three months: “Tesla shows a desire by investors to back disruptive companies as they build their sales.” General Electric, with a 44% rise in share price, is cited as a second example.

Of the money losing companies in the U.S., the article reports that 42% are health-care companies, “reflecting the popularity of small, often loss-making biotech stocks. Another 17% are tech stocks, many them fashionable new ventures.”

Part of the trend, the article explains, is that smaller loss-making company shares are suffering while their bigger peers are seeing share prices rise because they tend to represent growth stories “where investors don’t much mind the losses” (data from S&P Global Market Intelligence).

The article concludes that investors should “worry about their willingness to tolerate losses at companies promising growth” as it has “allowed many new businesses to finance losses well beyond what’s justified.”