There’s volatility and then there’s volatility. While markets have been up and down in recent weeks and some volatility in stock prices is to be expected, there are some risky stocks that aren’t even worth investors’ hard-earned money.
Some risky stocks belong to companies in an unproven industry or in poor financial shape. Others are risky stocks because they’re targeted by speculators. Some securities that fly high also crash hard, wiping out investors’ principal in the process.
Here we look at four risky stocks that just aren’t worth it.
- GameStop (NYSE:GME)
- Riot Blockchain (NASDAQ:RIOT)
- Quantumscape (NYSE:QS)
- AMC Entertainment (NYSE:AMC)
Risky Stocks: GameStop (GME)
Are you willing to ride the roller coaster? And, at this point, buying GME stock really is like stepping onto a stomach-churning roller-coaster ride. No stock this year has been more volatile, seen more highs and lows, and been as cruel to investors than GameStop.
The favorite of the so called “meme stocks” that are championed on the r/WallStreetBets Reddit forum, shares of GameStop started out 2021 trading at $17.25 per share. In a matter of days, they jumped as high as $483, only to crash back down to $44.97 and then spike again above $265.
Most of the moves higher in GME stock have occurred between one and three trading sessions. The round trip has seen GameStop shares run up 2,700% and then plunge 90%. Dramatic swings of plus or minus 50% often occur in less than one hour’s time.
This for the stock of a brick-and-mortar video game retailer that analysts have likened to Blockbuster Video and which was recently the most shorted security on Wall Street. Institutional investors were betting that GameStop’s shares were overvalued and due to fall when they were trading at $17.25 a share.
While the Reddit crowd succeeded in pumping GME stock up in a short squeeze while chanting “To the moon!” and following online pied pipers such as the infamous trader “Roaring Kitty,” the reality is that GameStop shares are no longer following any kind of logic in terms of price moves.
Anyone who risks their money on this stock now is asking for pain. At least we can say the whole GameStop saga was entertaining while it lasted.
Riot Blockchain (RIOT)
While not as volatile as GameStop, shares of Riot Blockchain have seen plenty of peaks and valleys this year.
The Colorado-based company that develops the blockchain technology needed to mine cryptocurrency sees its share price move in lock step with Bitcoin (CCC:BTC-USD). And as the world’s most expensive and popular cryptocurrency has moved sharply higher and lower, so too has RIOT stock.
As the price of Bitcoin has swung from just over $20,000 at the start of this year to $57,000, back down to $45,000 and then up to $62,000, Riot Blockchain’s stock has made similar moves. It rose from $16 to $79.50 before falling to $38 and then rising again to its current price of $64.
To tolerate all the highs and lows of RIOT stock, investors need a high tolerance for risk and a very long time horizon. Cryptocurrencies are likely to remain a largely speculative investment for the foreseeable future and, as such, the price volatility is likely to continue. And as goes Bitcoin and other cryptocurrencies such as Ethereum (CCC:ETH-USD), so too goes Riot Blockchain stock.
The company is so intertwined with crypto assets that its share price literally mirrors the movements of Bitcoin’s price. As cryptocurrencies become more mainstream, the volatility is like to calm down. But until then, Riot Blockchain remains an extremely risky investment.
One can only imagine what will happen to the stock should the price of Bitcoin crash, as some analysts predict.
Risky Stocks: Quantumscape (QS)
It’s been boom and bust for shareholders of Quantumscape stock, including Microsoft (NASDAQ:MSFT) co-founder Bill Gates, who was an early investor in the San Jose, California-based company that is developing next generation solid state batteries for use in electric cars.
QS stock turned a lot of heads late last year when it ran up 828% between the end of November and Christmas. The company’s share price vaulted from $14.30 to $132.73. It was briefly the hottest electric vehicle battery stock around.
Sadly, by the first trading day of 2021, QS stock had plunged 62% and was trading at just under $50 a share. It rose mid-February, briefly climbing above $65 per share before falling back again to its current level of just over $58.
The problem is that Quantumscape’s battery technology, which promises to revolutionize charging times and travel distance for electric vehicles, remains unproven and somewhat theoretical at this point. While the company and its stock holds lots of promise, there’s unlikely to be widespread adoption of Quantumscape’s solid state batteries in the near term.
This fact makes Quantumscape stock a long shot right now.
AMC Entertainment (AMC)
Another favorite of the Reddit crowd is the stock of movie theater chain AMC Entertainment. What makes AMC stock so risky isn’t just the vomit inducing moves in its share price but also the fact that the Leawood, Kansas-based company has been pushed to the brink of bankruptcy in the past year as the pandemic led to the closure of its 978 movie theatres.
While AMC Entertainment narrowly averted a bankruptcy filing thanks to a $917 million cash infusion from investors, its financial situation remains tenuous as communities large and small slowly begin to reopen.
Despite the closed theatres and near zero revenue, AMC stock has nevertheless been pumped and then dumped by the same Reddit crowd that has championed GameStop and other widely shorted securities. At the start of the year, AMC stock was trading under $2 a share. By the end of January, the stock had peaked at over $20 per share. The share price has since fallen as low as $5.50 and then back up to its current level of $14.
In spite of the stock’s recent rally, analyst Rich Greenfield at LightShed Partners recently put a price target of just one cent on the shares. To say people are bearish on AMC stock is an understatement.
Given the rough financial shape of the movie theater chain and the ascent of streaming services that threaten to destroy the entire movie-going experience, buying shares of AMC Entertainment right now is beyond risky. It’s foolish.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
