“Meme stock mania” has dissipated over the past few weeks. But, that may not mark the end for “Reddit stocks.” Back in January, this category of stocks popular with retail investors on the r/WallStreetBets (WSB) subreddit focused primarily on heavily shorted stocks like Gamestop (NYSE:GME).
But, as the weeks progressed, penny stocks became more prominent on the list. Fueled by the Reddit hype, these low-priced stocks began to make outsized moves in a matter of days. Divorced from their fundamentals, many of these stocks reached prices that made little sense.
Yet, now, with the mania taking a breather, are these speculative penny stocks ready to stage a rebound? Or, are they headed toward lower prices, as speculators continue to bail out of them? Only time will tell.
The market’s one day rebound on March 9 may have been a bear market rally. Or, it could have been the end of a brief correction, caused by the sudden rise in interest rates.
The jury may still be out on their future price movements, but these seven Reddit stocks, trading at penny stock levels, remain popular plays among the WSB community:
- Allied Esports Entertainment (NASDAQ:AESE)
- Genius Brands International (NASDAQ:GNUS)
- Ideanomics (NASDAQ:IDEX)
- Naked Brand Group (NASDAQ:NAKD)
- Sundial Growers (NASDAQ:SNDL)
- Trivago (NASDAQ:TRVG)
- Zomedica (NYSEAMERICAN:ZOM)
Reddit Penny Stocks: Allied Esports Entertainment (AESE)
As InvestorPlace’s Chris MacDonald wrote March 4, there’s been a lot of buzz as of late about e-sports stocks. This has trickled into increased interest for AESE stock. But now, the e-sports venue operator, which also owns the World Poker Tour (WPT) tournament franchise, could also be a takeover target as well.
I’m talking about a recent takeover bid from casino and i-gaming operator Bally’s Corporation (NYSE:BALY). Bally’s has offered to buy Allied for $100 million — but with one caveat. It not only wants the E-sports business, but the WPT business (which Allied was in the process of selling) as well.
Given that AESE stock (at around $2.40 per share) has a market capitalization of $83.5 million, this $100 million bid offers only a scant premium to its current trading price. In a press release on the Bally’s bid, Allied reiterated its preference for the pending WPT deal, which would provide it with a $78.25 million cash infusion to reinvest into its growing e-sports operations.
Unlike some of the other Reddit stocks out there, pumped up more on hype than substance, this situation looks a lot more interesting. With the potential of Bally’s upping its bid, or this company going through with its asset sale, this stock, up more than 50% year-to-date, could see another pop in the near-term.
Genius Brands (GNUS)
Genius Brands, which is trying to make a name for itself in the children’s entertainment business, experienced a Reddit-driven rally a few weeks back. But last summer, shares saw a more dramatic rise (and subsequent fall).
Between late May and early June, GNUS stock soared from around $1 per share, to as much as $11.73 per share. Hype around this stock skyrocketed, as the company touted the prospects of its Kartoon Channel! children’s streaming app.
Things cooled down significantly through the rest of 2020. As our own Matt McCall discussed last month, a major factor was the company’s aggressive use of capital raises, which resulted in shareholder dilution. But, with Reddit investors buying more on FOMO than on fundamentals, this stock saw another round of manic speculation in late January, with the stock doubling from around $1.50 per share, up to above $3 per share.
GNUS stock has fallen back to under $2 per share. Yet, that doesn’t mean Reddit investors have put it on the back burner. With the potential for it to make additional big moves, on the smallest of developments (as last seen on March 4), this popular penny stock could go on another epic run in the near-term.
With the strong performance of electric vehicle (EV) stocks from mid-2020, through early 2021, it’s no surprise that some penny stock companies have decided to seize the opportunity, and ride the coattails of this investing trend. And, that’s the situation here with IDEX stock.
In earlier years, Ideanomics was focused primarily on buying/investing in crypto and fintech-related startups. But, rapidly pivoting toward opportunities in EVs, shares became a hot play among retail investors. Including, those active in the WSB trading community.
Back in November, when the company first started publicizing its transformation into an electric vehicle play, investors bid it up from $1 per share, up to $3 per share. IDEX stock bounced around for a bit after that. However, just around when “meme stock mania” started, shares began shooting “to the moon.” Within weeks, this $2 per share stock was soon trading for prices well above $5 per share.
Ideanomics has again pulled back, and now trades for around $3.25 per share. But, even at reduced prices, I wouldn’t consider it the best way to play the EV trend. With the company investing in multiple long-shot EV startups, as opposed to focusing on building just one business, consider this an EV lottery ticket. Yet, one where the odds aren’t really on your side.
Naked Brand Group (NAKD)
Just like with GNUS stock, NAKD stock has been for the past year a popular penny stock among speculators. The intimate apparel retailer went on roller coaster ride last summer, before cratering down to literally pennies (52-week low of 7 cents per share).
But, thanks to the Reddit WSB trading community, the floundering company made a stunning stock market comeback. Fueled by the news of the sale of its bricks-and-mortar business, speculators took the news of its shift to becoming an e-commerce company, and ran with it.
After hitting extremely low prices late last year, Naked Brand stock had started to rebound at the start of 2021. But, as news got out of its new e-commerce focus, and Reddit investors hyped it up online, the stock went from around 40 cents per share, to as much as $3.40 per share, before brokerage trading restrictions pushed back to (slightly) more rational prices.
Now back to around $1 per share, is Naked Brand ready to go on another “Reddit rally?” It’s possible. But, given how badly shareholders have been diluted, via capital raises on Feb. 1 and Feb. 25, totaling $150 million, with the pie cut into many more slices, there’s less room for the stock to make another triple-digit move higher.
Sundial Growers (SNDL)
Pot stocks in general have performed well so far this year, on the heels of increased U.S. marijuana legalization odds. But, with its “penny stock status,” and popularity among Reddit investors, Canada-based cannabis company Sundial Growers has seen some of the most dramatic price moves.
It wasn’t one of the first stocks to benefit from the “meme stock madness” kicking off in late January. But, in the first few trading days in February, retail investors went into a frenzy, sending shares up nearly four-fold. As the dust settled, the stock fell to prices between $1 and $1.50 per share.
So, with shares now less inflated, is Sundial a Reddit stock that could stage a comeback? Yes and no. On one hand, it has big exposure to the pot legalization catalyst. Any progress could send the stock “to the moon” a second time.
On the other hand, as InvestorPlace’s Mark Hake broke it down March 3, the company’s recent heavy shareholder dilution could finally have an impact, sending it back toward prices under 50 cents per share. If you are looking for a pot legalization play to take a gamble on, more reasonably priced pot penny stocks, like OrganiGram (NASDAQ:OGI) may be a better option.
The popularity of Trivago among Reddit investors has been a major factor in its 60%+ move higher year-to-date. But, its status as a travel recovery play has benefited shares as well. Could this added catalyst help further TRVG stock additional runway? Even if it ceases being a popular trading vehicle among the WSB community?
It’s debatable. Back in February, when the Europe-focused travel search site operator reported quarterly results, Wall Street took note of Trivago’s optimism regarding a travel demand rebound starting in the third quarter of 2021. Incrementally stronger results starting then could help keep shares on their current upward trajectory.
Yet, how much higher can TRVG stock reasonably climb? It’s already well above where the stock traded for before the outbreak first made headlines (around $3 per share). Results won’t bounce back to pre-pandemic levels this year. Nor, will they do so in 2022.
In short, there was some logic behind the mad rush into Trivago shares. But, today’s valuation depends too much on a faster-than-expected travel rebound. If this doesn’t pan out, it’s going to be bad news for those long the stock today.
Some may not like the “meme stock” label being put on Zomedica. But, this description best explains how this once-obscure company became one of the most popular stocks among retail investors.
As the end of 2020, ZOM stock traded for around 23 cents per share. Yet, as news of its big potential with its Truforma pet diagnostics platform spread across the internet like wildfire, went on not one, but two parabolic moves. First, its run from 23 cents to over $1 per share in early January. Then, its second epic rally, from around $1 per share, to nearly $3 per share, starting in February.
Again, like other Reddit stocks, interest has cooled a bit since the middle of last month. The stock may be holding steady at $2 per share. But, even at this valuation, it’s hard to argue that Zomedica is reasonably priced.
How so? Sporting a $2 billion market capitalization today, valuation now is well above what some have called the “best case scenario” with regards to Truforma’s eventual commercial success. Yet, investors remain very bullish on its prospects. ZOM stock may be able to hold steady, its risks notwithstanding.
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Read More: Penny Stocks — How to Profit Without Gettting Scammed
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.