As market volatility reigns, there’s no better time than now to share the Zombie Stocks. I’ve decided to release this model portfolio to the public to help more investors.
Successful investing is as much about avoiding zombie stocks as it is finding good stocks. Just one blowup could upend years of winners.
I launched this list of Zombie Stocks in June 2022. Of the 33 stocks added to the list, only 12 remain. These stocks could legitimately go to $0/share because they have flawed business models that will likely never generate enough cash pay equity investors a penny.
The damage these stocks could do to your portfolio is not hypothetical. Since the first Zombie Stocks report on June 23, 2022, the Zombie Stocks short model portfolio (up 3%) has outperformed the shorting the S&P 500 (down 29%) by 32%. See Figure 1.
Figure 1: Performance of Zombie Stocks List Through 4/7/25
The most recent update to the Zombie Stock list was the removal of Trupanion (TRUP) due to it extending its cash runway beyond 24 months.
When I first named Trupanion a Zombie Stock it had enough cash to sustain its cash burn for another 23 months.
Trupanion slowed its FCF burn from -$109 million in 2023 to -$46 million in 2024. The lower, yet still negative, FCF means Trupanion no longer qualifies as a Zombie Stock because it has enough cash to sustain its 2024 FCF burn for 78 months from the end of March 2025.
Trupanion remains in the Danger Zone, and its stock is still very dangerous. Below I show why TRUP remains a very risky investment, and then I present the full Zombie Stock list in Figure 5 and 6. Figure 5 includes which stocks remain on the list. I’m always looking for more Zombie Stocks to add to the list.
Adjusted EBITDA Misleads Investors
If one only listened to Trupanion, you would get a misleading view of the company’s profitability. From 2019 to 2024, Trupanion’s Adjusted EBITDA improved from $11 million to $46 million, while its GAAP net income fell from -$2 million to -$10 million.
Over the same time, the company’s economic earnings, the true cash flows of the business, fell from -$21 million to -$77 million. It is a big red flag when the company’s preferred non-GAAP metric is rising while its economic earnings are declining, or even worse, when its GAAP net income is declining as well.
The discrepancy between the metrics should come as no surprise since Trupanion openly admits in earnings releases that its non-GAAP metrics may “exclude expenses that may have a material impact on Trupanion’s reported financial results.”
Figure 2: Trupanion’s GAAP Net Income vs. Economic Earnings vs. Adjusted EBITDA: 2019 – 2024
Cash Just Keeps on Burning
Despite positive and increasing Adjusted EBITDA, Trupanion hasn’t achieved a positive free cash flow (FCF) in any full year since 2015 (earliest data available). In fact, the company has only achieved a positive FCF in one quarter (3Q18) out of thirty-six in my model. Trupanion has burned $508 million (34% of enterprise value) in free cash flow (FCF) excluding acquisitions since 2015. See Figure 3.
Figure 3: Trupanion’s Cumulative Free Cash Flow Since 2015
Valuation Implies Trupanion Will Nearly Double its Market Share
Below, I use my reverse discounted cash flow (DCF) model to analyze the future cash flow expectations baked into Trupanion’s stock price. Trupanion’s stock is priced as if the business will instantly reach profitability, continue to grow revenue, and nearly double its market share, a feat that is highly unlikely. I also present an additional DCF scenario to highlight the downside risk in the stock if Trupanion fails to achieve these overly optimistic expectations.
To justify its current price of $35/share, my model shows Trupanion would have to:
- improve its NOPAT margin to 3% (equal to Prudential and Cigna’s 2024 NOPAT margin and above Trupanion’s -1% 2024 NOPAT margin) and
- grow revenue by 26% compounded annually (1.5x projected industry growth through 2032) for the next eight years.
In this scenario, Trupanion would generate $8.0 billion in revenue in 2032, which is more than 6x the company’s 2024 revenue, and grow its market share in the global pet insurance industry from an estimated 12% in 2024 to 21% in 2032. This scenario also implies Trupanion’s NOPAT would reach $272 million in 2032 compared to -$19 million in 2024.
Furthermore, companies that grow revenue by 20%+ compounded annually for such a long period are “unbelievably rare”, making the expectations in Trupanion’s share price even more unrealistic.
49%+ Downside at Industry Growth Rates
If I instead assume Trupanion:
- immediately improves NOPAT margin to 3% and
- grows revenue by 17% (projected industry growth) compounded annually each year through 2032, then
the stock would be worth $18/share today – a 49% downside to the current price.
This scenario still implies Trupanion’s revenue would reach $4.5 billion in 2032, which is 3.5x higher than the company’s 2024 revenue. In this scenario, Trupanion’s NOPAT would reach $144 million in 2032, which is well above the company’s best ever NOPAT of -$2 million in 2018.
Should the company fail to improve margins and grow revenue at a rapid pace, the stock could be worth $0.
Figure 4 compares Trupanion’s implied future NOPAT in these scenarios to its historical NOPAT.
Figure 4: Trupanion’s Historical and Implied NOPAT: DCF Valuation Scenarios
Stock May Not Be Worth $1
Each of the above scenarios assumes Trupanion grows revenue, NOPAT and FCF without increasing working capital or fixed assets. This assumption is highly unlikely but allows me to create best-case scenarios that highlight the unrealistically high expectations embedded in the current valuation. For reference, Trupanion’s invested capital grew 20% compounded annually in the last decade. If I assume Trupanion’s invested capital increases at a similar rate in the DCF scenarios above, the downside risk is even larger.
Given that the performance required to justify its current price is overly optimistic, I dig deeper to see if Trupanion is worth buying at any price. The answer is no.
The company has $129 million in total debt, $2 million in deferred tax liabilities, $6 million in employee stock options, and no excess cash. Trupanion has an economic book value, or no-growth value, of -$7/share. In other words, I do not think equity investors will ever see $1 of economic earnings under normal operations, which means the stock would be worth $0 today. Though TRUP is no longer a Zombie Stock, it remains very dangerous.
The Full Zombie Stock List
When I select companies to add to the Zombie Stock list, I look for companies that have:
- less than 24 months of cash to sustain their high cash burn, and
- a negative interest coverage ratio (EBIT/Interest expense).
While being on the Zombie Stocks list, companies may no longer meet these criteria. I review such instances to decide if I believe the company has truly improved its business, or if the results look more like a blip while the issues with the business model remain in place.
For the companies I believe have improved their standing, I remove them from the Zombie Stock list. In fact, I’ve removed companies from the list because:
- they have extended their cash runway before running out of cash,
- their stock prices are near $0,
- they have been acquired, thereby saved from going to $0, or
- they have turned their businesses around and look like they will avoid bankruptcy.
See Figure 5 for all stocks currently on the Zombie Stocks List.
Figure 5: Current Zombie Stocks List – 4/7/25
Of course, the risk of running out of cash within 24 months makes a stock risky. But what makes Zombie Stocks particularly dangerous? Low and negative economic book values.
For the few companies that currently generate positive earnings or net operating profit after-tax (NOPAT), they have liabilities that more than offset the positive earnings. In other words I do not think equity investors will ever see $1 of economic earnings under normal operations, which means the stock would be worth $0 today.
Making matters worse, the disconnect between market cap and economic book value increases risk. These stocks trade so far beyond the no growth value of the business that should the stock price correct, as we’re seeing in the current market, it could create a contagion where confidence in the business follows suit and pushes the company towards bankruptcy even quicker.
All Zombie Stocks – Current and Removed
Figure 6 shows all 33 Zombie Stocks. I mark those that have been removed from the list with an asterisk.
Figure 6: Zombie Stock Reports: With Performance Since Publish Date Through 4/7/25
*Stocks removed from the Zombie Stock List. Performance tracked through the date each was removed. Linked report goes to the report in which the stock was removed.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.