When I last wrote about Vinco Ventures (NASDAQ:BBIG) stock, I cautioned potential investors to stay on the sidelines. It was clear to see that momentum was fading.
After hitting a high of close to $12.50, BBIG stock traded at a downtrend until its current price of $2.54. The difference from an all-time high to the current price is an 80% decline in value. The stock is actually trading near where it was when the rally began.
Why was it clear to me that BBIG stock was on shaky ground? The first reason is how quickly the share price rose. The rally that brought BBIG stock from $2.56 to $12.50 lasted about two weeks. However in reality there were only two or three massive trading days. It was in these days that price action was unusual as despite the run-up there was huge selling pressure.
The other reason was that the run-up occurred without any major news. In other words, there was no fundamental reason for this 80+% move. There were rumblings about BBIG stock being a short squeeze candidate from the usual Reddit r/WallStreetBets crowd.
However, the sky-high share price was not justifiable, hence the slow downtrend back to earth a few days later.
Short Squeeze Stocks Haven’t Done So Well
I believe what happened early this year with GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) was a once-in-a-decade event. It was the ultimate storm. A story that involved large greedy hedge funds and plucky underdogs. But these kinds of stories rarely repeat themselves. I don’t think there will be another GME or AMC any time soon. At least not in the same way.
After the short-squeeze debacle, I am certain that the risk and compliance departments at major Wall Street firms have tightened their control on the processes. Furthermore, there are now so many people keeping an eye out for the short-interest ratio on stocks. Entire service offerings and newsletters have been launched to monitor short coverage. I believe therefore that the “edge” of this kind of trading strategy has been dulled. Investors should be wary of investing in the next short squeeze candidate. I think at this point huge short squeezes are extremely unlikely.
For example, a few months ago Clover Health (NASDAQ:CLOV) was a popular short squeeze contender. The shares had formed at a support level of around $7.50. CLOV stock is now trading at around a 50% haircut. The rumored short squeeze never came.
Bit Digital (NASDAQ:BTBT) stock attempted to break its 200-day moving average. BTBT stock has fallen around 40% since as it reentered its trading range. Other “potential” short squeezes such as BlackBerry (NYSE:BB) and UWM Holdings (NYSE:UWMC) remained flat.
Fundamental Case for BBIG Stock Remains Weak
Now I’m not saying you should avoid the stocks I’ve mentioned above. What I’m saying is that you need a solid fundamental reason for making an investment. In the case of Vinco Ventures, in my opinion, the company still faces a lot of execution risks. There are a lot of moving parts within the company with multiple businesses in unrelated fields and the eventual spin-off of its blockchain business. I am not sure if this will all pan out.
Complicating the investment case is the company’s disappointing Q3 2021 results. The company’s revenues decreased by 11.5% from $2.52 million in Q3 2020 to $2.23 million. Gross profit margins were under pressure as well as they fell from 40.3% to 31.4%. Given these subpar results, it’s difficult to justify BBIG’s $360 million market cap.
Your Takeaway and Risks Present
A Reddit-style meme stock short squeeze may no longer happen to BBIG stock. In my view, there is a lot of downside risk to BBIG stock if we are to use the lessons from the other failed short squeezes.
Therefore, investors need to take a good long look to see if Vinco Ventures is worth investing in. Is BBIG stock an investment worth holding five years from now?
I am not too sure. This is why I continue to avoid BBIG stock for now.
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On the date of publication, Joseph Nograles held a LONG position in GME. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.