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Zombie stock

A zombie stock is a stock of a company that’s barely surviving — still operating, still publicly traded, but financially weak and heavily in debt. These companies don’t earn enough profit (or any profit at all) to cover the interest payments on their debt without relying on constant refinancing or outside help.
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The term “zombie” comes from the idea that these companies are “alive” in name only — they aren’t growing, innovating, or generating real value, but they haven’t died (gone bankrupt) either. They often linger for years, propped up by cheap debt, government support, or investor optimism.

Zombie companies typically have:

  • Very low or no profits, often for multiple quarters or years
  • Debt levels so high they can’t cover just the interest payments from earnings
  • Reliance on borrowing, issuing new stock, or other financial maneuvers to stay afloat
  • Stagnant or declining revenue, with no clear path to recovery

In accounting terms, a common metric used is the interest coverage ratio — how many times a company’s earnings can cover its interest expense. If it’s less than 1, that’s a warning sign.

Zombie stocks often underperform the market over time because their underlying businesses are weak. They tie up investor capital that could be used in healthier, growing companies. In broader terms, when zombie firms dominate sectors or markets, they slow economic productivity by keeping resources stuck in unproductive businesses.

They may also present hidden risks in your portfolio — especially in passive index funds or ETFs, where you might unknowingly be exposed to struggling companies.

  • Bed Bath & Beyond (pre-bankruptcy): For years, it was unprofitable and relied on debt and store closures to survive. Eventually filed for bankruptcy in 2023.
  • GameStop (before meme stock mania): Before the Reddit-fueled surge, it was a struggling retailer with declining sales and a shrinking business model. It fit the zombie profile, though meme-stock interest gave it a temporary jolt.
  • AMC Theatres (2020–2023): Revenues collapsed during the pandemic. Though meme-stock enthusiasm boosted its stock price, the company remained deeply in debt and unprofitable for several years — a classic zombie company by fundamentals.

Zombie stocks can look cheap — often trading at a few dollars per share — and they can attract speculators hoping for a turnaround, a short squeeze, or a buyout. The rise of “meme stocks” showed that even zombie companies can see massive (but temporary) price surges driven by retail enthusiasm, not fundamentals.

Some investors are also betting that interest rates will drop or that the company will be acquired or saved.

Zombie stocks are high-risk, often speculative bets. While they might offer dramatic short-term gains if the market gets excited, they typically lack strong fundamentals and carry a high chance of decline or bankruptcy over the long term.

If you’re investing for growth or stability, it’s important to research the underlying health of a company — not just the stock price. In many cases, a low price is low for a reason.