Why Herbalife, Energy XXI Gulf Coast, and Carvana Slumped Today

Markets Motley Fool

The stock market climbed higher on Monday, bouncing back from substantial losses last week as geopolitical tensions eased and investors refocused their attention on the general strength of the U.S. economy. Major benchmarks moved higher by half a percent or more, with the technology-heavy Nasdaq Composite gaining the most ground after suffering a disproportionately large share of the declines in previous market sessions. Even though the general mood on Wall Street was favorable, some stocks nevertheless failed to participate in the rally. Herbalife (NYSE: HLF), Energy XXI Gulf Coast (NASDAQ: EXXI), and Carvana (NYSE: CVNA) were among the worst performers on the day. Below, we'll look more closely at these stocks to tell you why they did so poorly.

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Herbalife falls on China fears

Shares of Herbalife fell 5% on speculation about the potential for greater Chinese scrutiny of the multilevel marketing industry. China has attacked the industry in the past, with some arguing that the Chinese government sees the emphasis on individual achievement as part of a larger network as a potential threat to its control of the nation's economic and social structure. China is a huge market for Herbalife, so the company can ill afford to lose it by alienating regulators that have the power to put a major crimp in its global business. Moreover, after having made a misstep in marketing to the emerging-market nation, Herbalife needs to execute better than ever in China in order to make up lost ground.

Energy XXI keeps sinking

Energy XXI Gulf Coast stock fell another 18%, adding to losses late last week that stemmed from the offshore exploration and production company's second-quarter financial results. Energy XXI suffered a net loss on lower production volumes and a low-oil-price environment, as well as higher production costs. Investors seemed unconvinced that the company would be able to find enough low-cost, low-risk projects to enhance its base production levels adequately under current industry conditions. Moreover, crude oil prices fell Monday, dropping more than $1.25 per barrel to stay just around $47.50. Any further weakness in energy will only put more pressure on the stock, which hit its lowest levels since emerging from bankruptcy protection.

Carvana investors hit the brakes

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Finally, shares of Carvana finished down 6%. The innovative used-car seller continued to suffer declines in its share price following its second-quarter financial report, in which Carvana reported a net loss that more than doubled from the previous year's second quarter. Revenue and units sold more than doubled from year-ago levels, and the company boosted its per-unit gross profit in a bid for a more sustainable business model. Yet Carvana has to make expanding its overall business network the top priority right now, and that means that profits will take a back seat until the car retailer has grown to be a larger part of the overall sales network nationwide.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.