The meme stock frenzy continues to spread as more investors turn to these speculative shares despite their volatility. Thanks to never-ending retail trader hype, meme stocks appear to be gaining momentum again, even as global equities and cryptocurrencies tremble.
Investors are on the lookout these days for new names with meme stock potential. Those who can stomach higher risks are constantly scanning short-squeeze potentials in the market.
When enough retail traders put their minds and money into a meme stock to trigger a short squeeze, the momentum grows exponentially. In fact, these shares have generated breathtaking returns in 2021, skyrocketing in price in a matter of a few days. The most prominent meme stocks include AMC (NYSE:AMC) and Gamestop (NYSE:GME), which have returned around 1,546% and 788% year-to-date (YTD), respectively.
I’ll touch upon the recent earnings report for each stock so readers can judge whether their fundamentals justify an investment in these high-risk, speculative plays. With that in mind, here are seven meme stocks to buy that have significant short-squeeze potential in October:
- Affirm (NASDAQ:AFRM)
- Beyond Meat (NASDAQ:BYND)
- Root (NASDAQ:ROOT)
- SmileDirectClub (NASDAQ:SDC)
- Sundial Growers (NASDAQ:SNDL)
- SunPower (NASDAQ:SPWR)
- VanEck Vectors Social Sentiment ETF (NYSEARCA:BUZZ)
Meme Stocks: Affirm (AFRM)
52 week range: $46.50 – $146.90
Financial technology (fintech) company Affirm focuses on providing “buy now, pay later” (BNPL) services through its digital commerce platform. Its portfolio is comprised of a point-of-sale (PoS) payment offering, merchant commerce solutions and a consumer app.
Affirm issued fourth-quarter fiscal 2021 results in early September. Total revenue surged 71% year-over-year (YOY) to about $262 million. The company posted a net loss of $128 million, or 48 cents per diluted share, compared to a net income of $35 million, or 17 cents per diluted share, in the prior-year quarter. It ended the quarter with $1.47 billion in cash on hand, which implies a 449% YOY surge.
On the results, CEO Max Levchin remarked, “During the fourth quarter, we increased the number of merchants on our platform by more than fivefold, more than doubled gross merchandise volume and grew active consumers by 97% year over year.”
The BNPL industry continues to grow rapidly. According to Worldpay research, BNPL “accounted for 2.1% of global e-commerce transactions in 2020.” Affirm has recently made headlines in the BNPL space thanks to its recent partnership with Amazon (NASDAQ:AMZN).
Affirm’s collaboration with Amazon appears to be driving significant hype for AFRM shares. The stock has recently been on the rise on Reddit forums, becoming a meme stock play with a 7% short float.
AFRM stock hovers slightly below $120. It has gained nearly 70% over the past six months, but declined about 6% in the past two weeks. The shares trade at 21.3 times trailing sales.
Beyond Meat (BYND)
52 week range: $98.80 – $221
El Segundo, California-based Beyond Meat is the leading provider of plant-based meat substitutes for products such as burgers, sausage, ground beef and chicken. Management released Q2 results in early August.
Net revenue soared 32% YOY to $149 million. Growth was mainly fueled by the food-service business, which significantly benefited from the recovery of the global economy.
However, adjusted for one-time items, the company reported a net loss of $19.7 million, or 31 cents per diluted share, compared to a net loss of $10.2 million in the prior-year period. Cash and equivalents ended the quarter at $1 billion.
CEO Ethan Brown remarked, “We are pleased to report record net revenues and the return to growth in foodservice as our customers welcomed consumers back to their venues.”
Competition in this growing industry seems to be heating up. Nestle (OTCMKTS:NSRGY) and meat processors like Tyson Foods (NYSE:TSN) continue to expand their plant-based offerings, gaining market share at the expense of Beyond Meat. Management anticipates YOY sales growth of 27% to 48% for the third quarter.
In January, investors saw BYND stock rally more than 50% over a three-day period. A similar rapid rise happened in late May as well. Beyond Meat’s 24% short interest makes it prone to more Reddit-driven short squeezes in the coming months. The stock currently hovers around $100, down 21% YTD and 44% over the past year. The shares trade at 15.5 times sales.
Meme Stocks: Root (ROOT)
52-week range: $4.65 – $29.48
Columbus, Ohio-based Root owns Root Insurance, a technology platform operating with a direct-to-consumer model. It acquires most of its personal insurance customers through mobile applications.
The company released second-quarter financial figures in August. Root’s direct written premium figure surged by 24% YOY to $177 million. However, due to a significant increase in sales and marketing expenses, the insurance company again ended the quarter in the red. Net loss came in at $179 million, or a loss of 72 cents per share, compared to a $32 million net loss in the prior-year quarter.
CEO Alex Timm remarked, “In the second quarter, we met expectations on the top line but experienced challenges in loss ratio and the cost of certain performance marketing channels similar to others in the industry.”
The company estimates GAAP revenues will see growth in the high-single to low-double digits in the third quarter, followed by a decline in the fourth quarter. Full-year operating loss is expected to come in the high end of management’s initial outlook range of $555 million.
At short interest of 35%, ROOT stock is a speculative meme play that might see a significant short squeeze in the coming months. It hovers slightly above $5 and is down 66% YTD. The shares trade at 5.8 times trailing sales and twice its book value.
52-week range: $4.63 – $16.08
Nashville, Tennessee-based SmileDirectClub sells dental aligners, impression kits, whitening gel and retainers. The company achieved considerable progress on brand perception, marketing a lower-cost alternative to Align Technology’s (NASDAQ:ALGN) Invisalign brand of clear aligners.
The company released disappointing second-quarter results in early August. Total revenue grew 63% YOY to $174 million, falling short of the consensus expectations by 12%. It reported a net loss of $55 million compared to a $95 million loss in the previous year.
Diluted net loss per share stood at 14 cents. Despite $377 million in cash and equivalents, the company holds around $733 million in long-term debt.
On the results, Company CFO Kyle Wailes remarked, “The short-term headwinds from residual impacts of the April cyber-attack, the lasting economic effects from COVID on our target demographic and the slower scaling of some of our new international markets due to Covid prevented us from achieving our anticipated second quarter results.”
With increasing competitive pressures and a frail balance sheet, long-term prospects for SDC stock remain volatile. SmileDirectClub operates in a saturated market with significant rivals like Align Technology, Danaher (NYSE:DHR) and Dentsply Sirona (NASDAQ:XRAY).
The stock’s 33% short interest has made it an attractive target for a Reddit-driven short squeeze. Before the pandemic, SDC stock traded as high as $15. It is now hovering around $6 and is down by 49% YTD. The shares trade at less than three times sales.
Meme Stocks: Sundial Growers (SNDL)
52 week range: $0.14 – $3.96
Canadian cannabis group Sundial Growers markets premium cannabis for the adult-use market. It released Q2 results in mid-August.
Net revenue for the cannabis segment was 9.15 million CAD. Net loss was 52.3 million CAD compared to a loss of 60.4 million CAD in last year’s second quarter.
Cash, marketable securities and long-term investments ended the quarter at 1.1 billion CAD with no outstanding debt. Thus, the company’s balance sheet should keep operations afloat for the foreseeable future.
Sundial Growers is the favorite penny stock of the retail investor community. With 25% short interest, SNDL stock has significant potential for an epic squeeze.
Unfortunately, its financials include more than 98 million new warrants outstanding at an exercise price of $1.50. This implies that even if SNDL stock jumps above that level, investors holding those warrants would most likely exercise them, severely limiting the stock’s upside potential.
SNDL stock currently trades around 64 cents per share. The stock rallied to $1.50 or more on several occasions, and even hit $3.96 in February. SNDL stock is up 32% YTD and more than 173% over the past year. It has an expensive valuation compared to many of its peers, as the shares trade at nearly 20 times sales.
52-week range: $14.66 – $57.52
SunPower released Q2 results in early August. Revenue increased 42% YOY to $309 million. The company reported a non-GAAP net income of $10 million, or 6 cents per diluted share, compared to a net loss of $17 million in the prior-year period. Cash and equivalents ended the quarter at $140 million.
Following the announcement, CEO Peter Faricy remarked, “Our solid second quarter results reflect continued execution in both our residential and commercial businesses as year over year megawatts grew 40 percent and we doubled our gross margin per watt.”
SunPower is rapidly growing as a smart-home company that focuses on the residential and light commercial solar segment. The company has developed user-friendly tools that allow customers to receive a quote for a solar installation, connect with an installer and track their solar production.
Management anticipates breaking even in the third quarter and delivering $40 million to $60 million in profits for fiscal 2021. As 18% of SPWR shares are currently held short, investors might see a short squeeze in the coming months. SPWR stock currently trades for about $23 and is down 11% so far this year. The shares exchange hands at 37 times forward earnings and 3.6 times trailing sales.
Meme Stocks: VanEck Vectors Social Sentiment ETF (BUZZ)
52-Week Range: $21.93 – $26.92
Expense Ratio: 0.75%
The VanEck Vectors Social Sentiment exchange-traded fund (ETF) tracks retail investor sentiments from online sources and then invests in U.S.-based stocks making the headlines. The fund is appealing to investors interested in meme stocks and related retail trader activity.
BUZZ started trading in early March of this year and currently has 75 holdings. The leading ten stocks account for 30% of its net assets of $189.9 million. The roster includes names like GameStop, Nvidia (NASDAQ:NVDA) and Amazon.
In terms of sector allocations, information technology stocks lead the fund with 30.2%, followed by the consumer discretionary industry at 23%, communication services at 16.8% and industrials at 10.7%.
Potential investors should note that the fund’s returns are most likely to be volatile. For instance, BUZZ declined 3.4% over the past week. Its shares are up about 1% from its inception date.
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On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.