Yellow (NASDAQ:YELL) stock might entice thrill-seeking meme stock traders, but long-term investors will likely get nothing but problems by the truckload. I am bearish on YELL stock but wouldn’t dare to short-sell it, as both the buyers and the shorts are taking on too much risk right now.
Based in Nashville, Yellow’s history dates all the way back to 1924. Yellow is a trucking company that provides transportation, shipping, and logistics services. This might sound like a great business — perhaps even a recession-resistant one — to invest in now.
However, I’m not even thinking about backing up the truck and buying YELL stock. Yellow’s management may have been supremely confident about the company’s logistics business a couple of weeks ago, but a closer inspection will reveal that Yellow is an 18-wheeler of a company with flat tires and major problems under the hood.
Yellow: A 20-Truck Pileup in the Making
Let’s start by shifting gears into reverse for a moment. In late July, Yellow’s management announced that the company was “exploring opportunities to divest” its logistics business. The press release proclaimed that Yellow Logistics “Flourishes as Shippers and Vendors Turn to 3PL Logistics Providers.”
If the company’s logistics arm is so successful, then why was the company considering selling it? Already, we’re seeing a red flag for Yellow. More importantly, Yellow’s second-quarter 2023 financial report revealed that, on a year-over-year basis for its Yellow less-than-truckload (LTL) segment, the company reported significant declines across multiple metrics. These included declines in shipments per workday, tonnage per workday, as well as revenue per shipment.
We can also observe that Yellow’s earnings track record has been spotty during the past several quarters. On top of all that, Yellow has been wrangling with the powerful labor union known as the International Brotherhood of Teamsters (IBT). To put it mildly, Yellow’s ongoing negotiations with the IBT didn’t go well.
Additionally, The Wall Street Journal reported that Yellow “has $1.3 billion in debt maturities” coming due next year. Yet, YELL stock quadrupled in price in late July. To a certain extent, this share-price rally may have been prompted by news that Apollo Global Management might step in and provide some financing to help keep Yellow afloat.
Yellow Stock Rolls Over
While the possibility of financing probably encouraged Yellow’s investors, I suspect that meme stock trading and a short squeeze were the primary causes of the rally in YELL stock. After all, meme stock trading is apparently back in vogue now.
However, that rally may be in its exhaustion phase, as YELL stock is currently down about 29% today. Financial traders should probably have seen this coming. Going back to July 26, a report was already circulating that Yellow’s management was preparing “for a range of contingencies.”
By now, you can probably guess what that means. Unfortunately, it appears that Yellow has officially filed for Chapter 11 of the U.S. Bankruptcy Code, thus marking the likely beginning of the end of a nearly century-old American business. The fallout will be widespread, presumably, as roughly 30,000 jobs will be lost due to Yellow’s downfall.
Yellow CEO Darren Hawkins reportedly blames “union intransigence” for his company’s recent troubles. This really isn’t the place to debate the various issues that led to Yellow’s existential crisis. Sure, the long-standing negotiations with the IBT probably took a toll on Yellow’s bottom-line results. Yet, it’s not unreasonable to surmise that union-related issues weren’t the totality of Yellow’s problems.
In any case, Yellow’s biggest red flag is the fact that it’s officially going bankrupt. Now, it’s up to the current shareholders to pick up the pieces and hope that the meme team can pull off just one more short squeeze.
Is YELL Stock a Buy, According to Analysts?
TipRanks found that YELL stock has a Hold rating from J. Bruce Chan of Stifel Nicolaus, along with a price target of $2.50, implying 1.6% downside potential. This is the only rating given to the stock within the past three months.
Conclusion: Should You Consider YELL Stock?
I believe that neither the buyers nor the short sellers should consider a position in Yellow stock now. Both sides of the trade are too dangerous unless maybe you’re thinking about a quick day trade and have a hard stop-loss in place.
Even then, I personally wouldn’t go anywhere near YELL stock. When all is said and done, there’s a lesson to be learned here: meme dreams can come and go quickly, even with a company that’s older than most.
