Meme stocks gained immense popularity last year, with retail investors getting together on social media forums like Reddit’s WallStreetBets (WSB) to squeeze hedge funds by betting against them on fundamentally weak stocks.
The short squeeze helped many retail investors gain significantly. However, since the beginning of this year, interest in meme stocks has cooled off. Many meme stocks returned to earth amid concerns over multi-decade high inflation, the Federal Reserve’s aggressive interest rate hikes, and an economic slowdown.
Michael Burry, the hedge fund manager of “The Big Short” fame, warned that retail investors buying meme stocks are signing up for devastating losses. “All hype/speculation is doing is drawing in retail before the mother of all crashes,” the investor added. Investors’ bearish sentiment surrounding meme stocks is evident from Roundhill MEME ETF’s 45.9% decline year-to-date.
Thus, we think shares of meme stocks GameStop Corp. (GME), AMC Entertainment Holdings, Inc. (AMC), The Beachbody Company, Inc. (BODY), Vinco Ventures, Inc. (BBIG), and Robinhood Markets, Inc. (HOOD) are best avoided now.
GameStop Corp. (GME)
GME offers games and entertainment products through its e-commerce platforms and various stores in the United States, Canada, Australia, and Europe. The company markets and sells new and pre-owned gaming platforms, accessories, new and pre-owned gaming software, digital currency, and full-game downloads. GME operates more than 4,573 stores and e-commerce sites.
Last November, GME entered a new 5-year, $500 million global asset-based credit facility with a syndicate of banks. This new ABL facility replaced the company’s existing $420 million facilities due in November 2022. The new ABL credit facility might increase the company’s liabilities.
In the fiscal 2022 first quarter ended April 30, 2022, GME's adjusted selling, general, and administrative expenses increased 28.6% year-over-year to $452.20 million. The company’s operating loss widened 611.6% year-over-year to $153.70 million. Its adjusted EBITDA loss worsened significantly from the year-ago value to $125.50 million.
In addition, the company’s adjusted net loss and loss per share attributable to common stockholders came in at $157.90 million and $2.08, worsening 437.1% and 362.2% from the prior-year period, respectively.
Analysts expect GME’s loss per share to widen 118.4% from the comparable period in 2021 to $0.42 for the fiscal 2022 second quarter (ended July 2022). Furthermore, the consensus loss per share estimate for the third quarter (ending October 2022) is expected to come in at $0.40, worsening 14.2% year-over-year.
The stock gained marginally year-to-date to close the last trading session at $38.36.
GME’s POWR Ratings are consistent with this bleak outlook. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
GME has a grade of F for Value, Stability, and Sentiment. It has a D grade for Growth and Momentum. Within the Specialty Retailers industry, it is ranked #46 of 46 stocks.
To see GME’s POWR Rating for Quality, click here.
AMC Entertainment Holdings, Inc. (AMC)
AMC is a leading theatrical exhibition company that delivers distinctive and movie-going experiences. The company owns, operates, and has interests in theatres in the United States and internationally. It operates more than 950 theatres and 10,600 screens.
On February 14, AMC completed a private offering of $950 million in aggregate principal amount of 7.5% senior secured notes due 2029. This note offering is expected to increase the company’s debt and interest.
AMC's operating costs and expenses increased 59.5% year-over-year to $1.18 billion in the fiscal 2022 second quarter ended June 30, 2022. The company’s operating loss and net loss amounted to $16.10 million and $121.60 million, respectively. AMC’s adjusted loss per share came in at $0.20 for the second quarter.
Analysts expect AMC's loss per share to amount to $0.21 for the fiscal 2022 third quarter ending September 2022. Also, the consensus loss per share estimate for the current year (ending December 2022) is expected to come in at $1.16. The company has missed the consensus EPS estimates in each of the trailing four quarters.
AMC’s shares have plunged 29.6% year-to-date and 37.5% over the past year to close the last trading session at $18.66.
AMC’s POWR Ratings reflect this poor outlook. The stock's overall D rating equates to a Sell in our proprietary rating system.
AMC has an F grade for Sentiment and Sentiment. The stock has a D grade for Value and Quality. Within the F-rated Entertainment-Movies/Studios industry, it is ranked #8 of 8 stocks.
Click here to access AMC's additional POWR Ratings (Growth and Momentum).
The Beachbody Company, Inc. (BODY)
BODY operates as a health and wellness platform that offers fitness, nutrition, and stress-reducing programs. The company operates in two segments: Beachbody; and Other. It also provides Beachbody on Demand, a digital subscription platform that provides access to fitness and nutrition content, and Openfit, which offers digital fitness and wellness resource.
The company also provides nutritional products, protein supplement Recharge products, and connect fitness equipment. It has more than 2.5 million digital and 0.3 million nutritional subscriptions.
In the fiscal 2022 first quarter ended March 31, 2022, BODY’s revenue and gross profit came in at $198.92 million and $93.02 million, down 12.1% and 41.2% year-over-year, respectively. Its operating loss widened 135.3% from the year-ago value to $74.42 million. The company’s adjusted EBITDA loss amounted to $19.11 million, compared to $11.74 million in the prior-year period.
Furthermore, BODY’s net loss widened 144.6% year-over-year to $73.53 million. Its net loss per common share came in at $0.24, worsening 100% year-over-year.
Analysts expect BODY’s revenue for the fiscal 2022 third quarter (ending September 2022) to come in at $189.58 million, representing an 8.9% decline from the same period in 2021. Furthermore, the consensus loss per share estimate for the ongoing quarter is expected to come at $0.10.
The stock has declined 43.6% year-to-date and 83.8% over the past year to close the last trading session at $1.40.
BODY's POWR Ratings reflect its poor prospects. The stock has an overall D rating, equating to a Sell in our proprietary rating system.
BODY has a D grade for Growth, Quality, Sentiment, and Stability. Within the Consumer Goods industry, it is ranked #53 of 59 stocks.
To see BODY's POWR Ratings for Value and Momentum, click here.
Vinco Ventures, Inc. (BBIG)
BBIG develops and commercializes end-to-end consumer products in North America. The company provides kitchenware, small appliances, baby products, health and beauty aids, entertainment venue merchandise, and housewares. It serves retailers, mass-market retailers, government agencies, hospitals, and distributors. In addition, it offers digital marketing services for brands and influencers.
BBIG's gross profit decreased 34.1% year-over-year to $601,163 in the fiscal 2021 first quarter ended March 31, 2022. The company's total selling, general, and administrative costs amounted to $26.80 million, up 129.8% from the year-ago value.
In addition, the company’s net loss attributable to BBIG came in at $372.95 million and $3.05, widening 497% year-over-year. Its net loss per share from continuing operations amounted to $3.05.
The stock has declined 78.2% over the past six months and 76.7% over the past year to close the last trading session at $0.69.
BBIG’s POWR Ratings are consistent with this bleak outlook. The stock's overall F rating translates to a Strong Sell in our proprietary rating system.
BBIG has an F grade for Value, Stability, and Quality. It has a D grade for Growth, Momentum, and Sentiment. Within the Consumer Goods industry, it is ranked #59 of 59 stocks.
To access POWR Ratings for BBIG, click here.
Robinhood Markets, Inc. (HOOD)
HOOD operates a financial services platform in the United States. The company's platform enables users to invest in stocks, exchange-traded funds (ETFs), gold, options, and cryptocurrencies. In addition, it provides learning and education solutions, including Snacks for business news stories, Newsfeeds that give access to free premium news from different sites, and first trade recommendations.
Last December, the Schall Law Firm, a national shareholder rights litigation firm, announced that a class action lawsuit had been filed against HOOD for violations of the federal securities laws. The company’s public statements were false and materially misleading throughout the IPO period. It led to investors suffering severe damages.
For the fiscal 2022 second quarter ended June 30, 2022, HOOD's revenues decreased 43.7% year-over-year to $318 million. Its operating expenses increased 21.8% from the year-ago value to $610 million. The company's net loss and loss per share attributable to common stockholders amounted to $295 million and $0.34, respectively.
The consensus revenue estimate of $353.60 million for the fiscal 2022 third quarter (ending September 2022) represents a 3.1% decline from the prior-year period. The consensus loss per share estimate of $0.39 for the current quarter represents a widening of 424.3% year-over-year. Furthermore, the company has missed the consensus revenue estimates in each of the trailing four quarters.
HOOD’s shares have slumped 41% year-to-date and 84.5% over the past year to close the trading session at $10.88.
HOOD's POWR Ratings reflect its weak prospects. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
HOOD has an F grade for Stability and Sentiment. It has a D grade for Value and Quality. It is ranked #143 of 154 stocks in the F-rated Software - Application industry.
To see additional POWR Ratings (Momentum and Growth) for HOOD, click here.
GME shares were trading at $39.99 per share on Friday afternoon, up $1.63 (+4.25%). Year-to-date, GME has gained 7.80%, versus a -12.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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