3 Reddit Meme Stocks To Keep At An Arm’s Length

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Summary

• The trend of Reddit-fueled meme stocks has been resurfacing since the end of January this year.
• But just as rapidly as they rocketed to the stars, many of these meme stocks also collapsed back to the earth just as quickly once the trend died down.
• A primary reason that experts point at when cautioning investors against meme stocks is, most meme stocks don’t shoot up on the trending charts on the back of their fundamentals.

The trend of Reddit-fueled meme stocks has been resurfacing since the end of January this year. Day traders communing on the social media platform’s forums propelled a number of heavily shorted stocks to insane popularity.

But just as rapidly as they rocketed to the stars, many of these meme stocks also collapsed back to the earth just as quickly once the trend died down.

There are multiple reasons that experts point at when cautioning investors against chasing meme stocks without sufficient research. A primary one is, most meme stocks don’t shoot up on the trending charts on the back of their fundamentals.

On that note, let’s glance through five Reddit-boosted stocks that rallied without a sturdy basis to land on.

1.    GameStop Corporation (GME:US or NYSE: GME)

GameStop Corporation became a favorite among Reddit-based day traders in late January after short stock commentors went bearish on it. As the chart room war between the two groups escalated, the stock went through the roof to unimaginable heights, making GameStop an international fad in about a week’s time.

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If we take a look at GameStop’s latest financials, however, the video game retailer saw its net sales drop to US$ 5.090 billion in fiscal year 2020 from US$ 6.466 billion in fiscal FY19. While the company has been building its online gaming presence and recorded a 191 per cent  year-over-year (YoY) jump in global sales in 2020, its primary focus has been physical stores for a very long time. And last year, the company saw a 12 per cent reduction in its store base as well as a substantial number of temporary shutdowns amid the pandemic.

After announcing its 2020 annual and last quarter financials on Tuesday, March 23, GameStop stock plunged by nearly 34 per cent on Wednesday.

2.    Zomedica Corp (NYSE American:ZOM, ZOM:US)

 
Veterinary health company Zomedica Corp keeps coming back to the trending charts, especially following discussions on Reddit threads.

Zomedica stock shot up to a 52-week high of US$ 2.91 last month (February 8) amid the Reddit-led meme stock frenzy. Since then, it has collapsed by over 47 per cent in about a month’s time.

While its stocks reflect a year-to-date (YTD) growth of over 563 per cent, its latest financials show that the pet health company recorded a net and comprehensive loss of about US$ 16.9 million in the year ending 31 December 2020.

Presently in the development stage, Zomedica also did not see any revenues in 2020, while recording research and development (R&D) expenses of about US$ 8 million and general and administrative (G&A) expenses of some US$ 6 million.

Zomedica, however, recently launched its pet-focused Truforma diagnostic system, announcing its official entry into commercialization earlier this month. And while this gives a hope for future revenue, veterinary medicine industry remains much smaller in comparison to the demand for human drug developers.

3.    AMC Entertainment Holdings (NYSE:AMC)

It is no secret that the entertainment and recreation industry has taken quite a financial beating because of the coronavirus pandemic. Stocks of AMC Entertainment, however, skyrocketed to a record 52-week high of 20.36 on January 27 amid the Reddit-boosted meme stock rally.

Since then, as the rally died down, AMC stock has deflated by nearly 56 per cent about two months’ time.

1-year chart of AMC’s stock performance (Source: EODHD/Others/Thomson Reuters)

On the financial front, AMC Entertainment reported a 77.3 per cent decline in its revenues for the year ending 31 December 2020. It also recorded an annual net loss of US$ 4,589 million in 2020, which was significantly up from that of US$ 149 million in 2019.

With COVID-19 cases continuing to rise on a global scale, the possibility of movie watchers thronging cinema theatres in hundreds does not seem to be happening any time soon. So it is likely that AMC will take some time to bounce back completely.

The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.