RTI Surgical (RTIX) has continued to pull back since reporting disappointing breakeven earnings results earlier this week. After delving deeper into the report and watching the stock closely since we moved it to a hold on Tuesday, I no longer see any upside potential left in the shares and am recommending that you sell RTIX.

The decline in profitability of the tissue business could not have come at a worse time for RTIX, as the company needs the cash flow of that segment to help cover the debt of its acquisition of Pioneer Surgical. Based on the guidance given, operating income from the combined companies will be no more than 3X the interest and preferred dividend charges from the deal, and that assumes at least some improvement in the tissue business, which management has said could take a while to recover.

This acquisition has dramatically changed the structure of RTIX, which had a clean balance sheet, excess working capital and a steady cash flow to enhance shareholder value when I recommended it. With significant hurdles for the company to deal with ahead, I believe risk has gotten too high for us to continue holding the shares, especially since they are now vulnerable to a market correction. Our best move now is to limit our losses and sell RTIX.