The Reddit stocks phenomenon may no longer be as intense as earlier in the year. After all, the markets have been under pressure lately. Yet the impact of this group is still notable. And it is far from clear if this will be a long-term trend or just a fad.
For example, back in the late 1990s, something similar happened on stock chat boards including AOL and Raging Bull, which helped to propel the dot-com boom. The trend lasted a few years.
Now regardless of what may play out, investors should have some caution with Reddit stocks as valuations remain at lofty levels. So then, which are the ones to stay away from for now?
Well, let’s take a look at seven:
- Sundial Growers (NASDAQ:SNDL)
- Ocugen (NASDAQ:OCGN)
- Zomedica (OTCMKTS:ZOM)
- Vislink Technologies (NASDAQ:VISL)
- AMC Entertainment (NYSE:AMC)
- Ideanomics (NASDAQ:IDEX)
- Koss (NASDAQ:KOSS)
Reddit Stocks: Sundial Growers (SNDL)
Sundial Growers is a licensed cannabis producer based in Alberta, Canada, and owns a variety of brands like Palmetto, BC Weed Co. and Topleaf. The company also operates a 470,000 square foot facility.
Until recently, SNDL stock was at penny levels. In September, it was at 14 cents a share!
But since the election of President Joe Biden, the stock price has surged. It was as high as $3.96 in February. Although, it has since leveled to $1.09.
Regardless of the Reddit stocks phenomenon, investors should be wary. Note that the growth has been muted, at only 10% in the latest quarter to $73.3 million. Then again, the Canadian market remains intensely competitive and the company has been transitioning its business. The focus is now mostly on premium brands.
While the U.S. market has lots of potential, the fact is that Sundial Growers does not have a footprint in the country. So it could take a while for it to see any traction in the market. In the meantime, there other companies, like Canopy Growth (NASDAQ:CGC), that look better positioned for the opportunity.
Ocugen, which is a pre-revenue biotech operator, was trading at 30 cents a share in November. But this would not last long. The Reddit traders would aggressively buy up OCGN stock – sending the price to a high of $18.77. However, the shares have since fallen to $6.70.
So why all the excitement? The main reason was that Ocugen snagged a licensing agreement with Bharat Biotech to sell Covaxin in the U.S. It’s an approved vaccine in India for the novel coronavirus.
But there are some issues. First of all, there will probably be a need to do a clinical trial in the U.S., which will take some time and not be cheap. Then there is the problem with supply in the U.S. Within the next month or so, there shousld be more than enough vaccines from top companies like Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA) and Johnson & Johnson (NYSE:JNJ).
Thus, it seems like a stretch that Ocugen will be able to get much traction with the license – and this could mean that the stock price is vulnerable at current levels.
Zomedica is the developer of point-of-care diagnostic products for cats and dogs. Like many Reddit Stocks, it was a penny stock within the past year. It got to below 10 cents a share.
But as of now, ZOM stock is at $1.46. As for the high on the shares, this came in February, when they hit $2.90.
The company’s lead candidate is Truforma, which is biosensor system. The first five assays can detect ailments like thyroid and adrenal disorders in companion animals. The technology is actually based on similar systems used for smartphones and radar.
Truforma has advantages like minimal training requirements, complete control over the testing and faster results. The system weighs seven pounds and is the size of a shoebox.
Despite all this, the adoption of the technology could take time. The reason is that it is far from clear that this is a must-have product. Besides, existing solutions do a reasonable job anyway with the testing.
As a result, it could be tough for Zomedica to gin up growth. For example, H.W. Wainwright’s Swayampakula Ramakanth estimates sales for Truforma will hit only about $53 million by 2030.
Vislink Technologies (VISL)
Vislink is the developer of advanced video systems for news, sports, entertainment and military purposes. The company’s technologies have been used for the Olympic Games and World Cup.
However, because of the Covid-19 pandemic, the company has struggled because there have not been as many live events. But of course, this will change as the vaccines continue to roll out.
Vislink also got some good recent news from the U.S. Department of Defense, which agreed to a contract for $4 million for handheld video systems. On the news, the stock price got a boost.
But investors should still be cautious. Consider that the overall business for Vislink is fairly small. In the latest quarter, the revenues came to only $4.8 million. The company also has low margins as the EBITDA was -$2.4 million.
Moreover, the reliance on military contracts can be dicey. With the incoming Biden Administration, there may be some more pressures on budgets.
AMC Entertainment (AMC)
AMC has thus far been a popular Reddit stock. The reopening should provide a charge for AMC’s top line. But this may not be enough to sustain the stock price.
Why so? Well, there is the secular trend of streaming. While a theater experience is fun, it may have less overall demand. It also does not help that AT&T’s (NYSE:T) WarnerMedia is launching feature films on HBO Max on the same day they are made available in the theaters.
Another issue is that AMC has ramped up its debt in order to stay afloat (it’s currently at $5.7 billion). The result is that the profits are likely to be muted.
And finally, the valuation on AMC stock is far from cheap. According to TipRanks.com, the consensus price target is $6.38, which assumes 39% downside.
In the meantime, AMC is seeking shareholder approval to issue 500 million shares. True, this does not mean all shares will be sold. But it does represent an overhang of potential dilution for the stock.
Ideanomics got its start back in 2004 and has pivoted into several businesses since then. From 2010 to 2017, the company focused on video on demand services. Then in 2017, there was a change to being a fintech operator, such as with blockchain and AI.
But these businesses did not get much traction, unfortunately.
Then what is the company doing now? It is investing in the red-hot Chinese EV (Electric Vehicle) market.
Despite this, the business is small, with revenues for 2020 at $26.8 million. By comparison, the market capitalization is at a hefty $1.3 billion.
Reddit stocks: Koss (KOSS)
Founded in 1958, Koss is a designer and manufacturer of headphones. The company has a rich history, having been the innovator of the first high fidelity stereophones.
But until recently KOSS stock as been a laggard, trading in the range of $1 to $2 or so. However, in December it became part of the Reddit stocks universe. The result is that KOSS is now trading at $23.
Yet, there has not been much news to justify the move. The company is small, with revenues of $4.9 million in the latest quarter (they increased by 18.4%).
Thus, in terms of fundamentals KOSS stock looks overvalued, as it is trading at over 8 times sales.
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On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.