The influence of social media on securities trading was exhibited when speculative trading by the online Reddit community r/WallStreetBets and popular trading platforms like Robinhood Markets, Inc. (HOOD) caused several short squeezes in fundamentally weak stocks earlier this year.
Meme stocks typically gain popularity through social media platform discussions and retail investors’ interest rather than on macroeconomic factors. However, the price rises are generally unsustainable due to the stocks’ weak fundamentals. The 25 most popular meme stocks are down 24% in price over the last month, which has caused the loss of about $44.50 billion by speculative investors..
With the newly identified omicron variant driving stock market volatility, meme stocks Tesla, Inc. (TSLA), AMC Entertainment Holdings, Inc. (AMC), and GameStop Corp. (GME) are best avoided now. Wall Street analysts expect these stocks to continue to retreat in the near term.
Tesla, Inc. (TSLA)
This EV manufacturing behemoth does not need any introduction. Palo Alto-Calif.-based TSLA sells EVs, electric generation systems, and storage systems globally. The company operates through the segments Automotive, and Energy Generation and Storage.
In September, Rosen Law Firm, a global investor rights law firm, encouraged shareholders of TSLA to join a class-action lawsuit regarding the formal investigation underway about the company’s Advanced Driver Assistance System (ADAS). The investigation was formally announced on August 16 by the National Highway Traffic Safety Administration (NHTSA), following collisions with parked emergency vehicles. The company is also under investigation by several other law firms, including Pomerantz LLP, the Schall Law Firm, and Glancy Prongay, and Murray LLP.
For the fiscal third quarter ended September 30, TSLA’s total cost of revenues increased 50.5% year-over-year to $10.10 billion. Its total operating expenses rose 32.1% from the prior-year quarter to $1.66 billion. And for the nine months ended September 30, the company’s net cash provided by financing activities decreased 154.2% from the same period last year to a negative $3.95 billion.
The Street’s $8.17 EPS estimate for the next year (fiscal 2022) indicates an increase of 34.8% from the current year.
The stock has declined 16.9% in price over the past month and 10.7% over the past five days to close Friday’s trading session at $1,014.97.
Of the 25 Wall Street analysts rating TSLA, seven have rated it Sell, 12 rated it Buy, and six rated it Hold. The 12-month median price target of $938.52 indicates a 7.5% potential downside. The price targets range from a high of $1,485 to a low of $215.00.
This bleak outlook is reflected in TSLA’s POWR Ratings. The stock has a Value grade of F and a Stability grade of D. In the 64-stock Auto & Vehicle Manufacturers industry, it is ranked #29. The industry is rated F. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for TSLA (Growth, Momentum, Sentiment, and Quality).
Click here to checkout our Electric Vehicle Industry Report for 2021
AMC Entertainment Holdings, Inc. (AMC)
Leawood, Kans.-based AMC operates in the theatrical exhibition business. The company owns, operates, or has interests in theaters. It functions across several theaters and screens in the United States and globally.
On November 15, law firm Miller Shah LLP issued a notice stating a class action lawsuit settlement, with a February 10, 2022, hearing date given. According to the settlement, AMC, on behalf of all defendants, is expected to pay $18 million in exchange for the dismissal of the suit without any lingering prejudice.
AMC’s operating costs and expenses increased 14.3% year-over-year to $908.40 million in its fiscal third quarter ended September 30. Its net loss attributable to AMC came in at $224.20 million, while loss per share stood at $0.44.
Analysts expect AMC’s EPS to remain negative until next year (fiscal 2022).
The stock has declined 30.4% in price over the past month to close Friday’s trading session at $29.01. It has declined 21.3% over the past five days.
Two of the four Wall Street analysts rating AMC have rated it Sell, while the other two analysts have rated it Hold. The 12-month median price target of $8.17 indicates a 71.8% potential downside. The price targets range from a high of $16.00 to a low of $1.00.
AMC’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which translates to Sell in our POWR Rating system. AMC has a Value and Stability grade of F and a Sentiment and Quality grade of D. In the 9-stock Entertainment – Movies/Studios industry, AMC is ranked #8. The industry is rated F.
Click here to see AMC’s additional POWR Ratings for Growth and Momentum.
GameStop Corp. (GME)
GME is a specialty retailer that provides games and entertainment products that include new and used video game platforms, controllers, gaming headsets, and memory cards through its e-commerce properties and stores in various countries. GME is based in Grapevine, Tex.
In October, Labaton Sucharow LLP, a premier securities litigation law firm, announced that it is pursuing claims on behalf of HOOD traders who suffered losses by holding stocks of GME, AMC, and other such companies, following HOOD’s decision to restrict trading.
For its second fiscal quarter, ended July 31, GME’s adjusted selling, general, and administrative expenses increased 10.5% year-over-year to $372.30 million. Its net cash provided by operating activities and net cash provided by investing activities came in at a negative $11.50 million and a negative $13.60 million, respectively, down 106% and 132.3% from the same period last year.
A $1.06 consensus EPS estimate for the current quarter (ending January 2022) indicates a 20.9% year-over-year decrease. Likewise, the $2.03 billion consensus revenue estimate for the current quarter reflects a 4.5% decline from the prior-year quarter.
GME’s stock has declined 30.6% in price over the past six months and 19.2% over the past month to close Friday’s trading session at $172.39.
The 12-month median price target of $50.00 indicates a 71% potential downside.
GME has an overall D rating, which equates to Sell in our proprietary rating system. The stock has an F grade for Value and Stability and a D grade for Sentiment. It is ranked #40 out of the 44 stocks in the Specialty Retailers industry.
To see the additional POWR Ratings for Growth, Momentum, and Quality for GME, click here.
TSLA shares were trading at $1,009.34 per share on Monday afternoon, down $5.63 (-0.55%). Year-to-date, TSLA has gained 43.03%, versus a 24.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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