Boy oh boy, have the meme stocks gotten some rough treatment or what?
I would argue that to some extent, most of these stocks deserved this. Many meme stocks were trading to cuckoo levels, with the astronomical gains leading to silly valuations. The market was handing out multi-billion market capitalizations for some firms that didn’t even have revenue yet!
Of the companies that did have revenue, many stocks were trading at 20 to 30 times that revenue — if not more — when that type of valuation has only been reserved for the best of the best.
Now that we’ve seen a huge washout, though, I would argue that many of these growth stocks are overdone on the downside. So as we pick through the scraps of meme stocks, these seven are a few that stand out as potential buying opportunities.
- Roku (NASDAQ:ROKU)
- Gogo (NASDAQ:GOGO)
- SoFi Technologies (NASDAQ:SOFI)
- Palantir (NYSE:PLTR)
- Upstart Holdings (NASDAQ:UPST)
- Bed Bath & Beyond (NASDAQ:BBBY)
- C3.ai (NYSE:AI)
Now, let’s dive in and take a closer look at each one.
Meme Stocks to Watch Now: Roku (ROKU)
You’ll notice this list isn’t a bunch of Reddit stocks, like GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC). Nothing against those companies, but I wanted to pick some of the prior momentum and so-called “meme stocks” that have the best potential going forward. And in my opinion, Roku fits on that list.
There are a few clear takeaways from the pre-Covid vs. post-Covid world, and one of them is that steaming video isn’t going away. Consumers continue to gobble up new shows, movies and binge-worthy content.
While Netflix (NASDAQ:NFLX), Disney (NYSE:DIS) and others continue to work through the difficulty of that navigation, Roku continues to churn out consistent growth. Not that the market seems to care, with shares of ROKU stock falling more than 72% over the past year.
However, the growth is still there even though Roku missed analysts’ revenue estimates. Even worse, it missed on revenue guidance, too. For a growth stock, that’s a big no-no. But the company continues to generate improving margins and cash flow while streaming hours and active users continue to climb.
Overall, it’s a tough time for meme stocks and growth names right now. But I think Roku will not only survive but thrive down the road.
Gogo was a crowd favorite when meme stocks were sporting explosive rallies. It has made multiple runs into the $18 to $20 range, but ultimately, each one of those rallies has failed.
Most recently, the stock made such a run in November. Shares topped out at $19.49 before falling roughly 38% down to a low of $12.09. That said, all it needed was earnings to renew bulls’ confidence. And with the 32% gain over the past month, I’d say GOGO stock has done just that.
On March 3, the company reported earnings and shares exploded 20% in the two days since. Gogo delivered a top- and bottom-line earnings beat, while full-year guidance came in ahead of expectations as well.
Better yet, the company is forecast to become free cash flow positive this year, while Gogo “compound annual growth rate of approximately 15% from 2021 through 2026 (versus prior target of approximately 15% from 2020 to 2025).”
Moreover, from CEO Oakleigh Thorne, “We remain on track for commercial deployment of our 5G ATG network in the second half of 2022 which we expect to further accelerate our growth.”
Meme Stocks to Watch Now: SoFi Technologies (SOFI)
SoFi Technologies is one of those companies that are being treated like a meme stock even though the business is doing pretty well. And beyond doing pretty well, the stock keeps trying to rally on good news; But those rallies are failing.
In January, SoFi bucked the trend of meme stocks and ripped higher, climbing almost 40% in just a couple of days on news that it received regulator approval to become a national bank.
However, that rally was sold into. As was SoFi’s earnings report, which initially launched the stock higher by about 20% in after-hours trading. This was rather surprising, as SoFi delivered a top- and bottom-line beat, while guidance also beat analysts’ expectations.
Estimates call for revenue growth of 55% in 2022, 42% in 2023, 32% in 2024 and 24% in 2025. If that comes to fruition, I have a hard time believing SoFi stock doesn’t generate some nice returns.
I have really struggled with Palantir in the past, with a simple explanation: Valuation.
While Palantir has generated some really impressive contracts and locked in big-name customers, its valuation was simply silly amid some of those rallies. Now, though, I have to take a closer look at this stock.
Analysts expect roughly 30% annual revenue growth in 2022 through 2024, while Palantir is already profitable. That, combined with the stock price evaporating off the highs and encroaching on October 2020 levels, makes Palantir stock one to look at.
It might have been one of the meme stocks of the past, but at some point, investors will need to look through that facade. Just because Wall Street went through a craze with growth names, doesn’t mean Palantir doesn’t have a real business with real revenue growth and real profits.
Not to mention that cash and equivalents of $2.3 billion are roughly ten times the size of total debt, this one is becoming difficult to ignore near or below $10.
Meme Stocks to Watch Now: Upstart Holdings (UPST)
Talking about hard to ignore, Upstart Holdings is one of the few prior meme stocks that has any sort of upside momentum. While it’s faded from its recent highs, shares more than doubled from the January low earlier this month before falling again.
While it’s always possible that those lows break and we retest the $75 to $80 area, Upstart has growth investors’ full attention.
Earnings are what kickstarted the rally after the late-January bounce, which came at a time when earnings were generating the opposite reaction in most growth and meme stocks.
The company smashed earnings expectations and beat revenue estimates while announcing a $400 million buyback plan. Keep in mind, Upstart sports a market cap of just near $10 billion. Guidance came in on par with estimates, with management expecting revenue of $295 million to $305 million vs. a consensus of $303.49 million.
Furthermore, analysts expect almost 70% revenue growth this year to $1.4 billion, but we’ve already seen how conservative consensus estimates have been. Of course, the whole bullish argument is deeply aided by the fact that Upstart is profitable as well.
Bed Bath & Beyond (BBBY)
Bed Bath & Beyond is a little different than Upstart, Palantir and SoFi. First, it’s a retailer and not DeFi platform or tech company. Second, Bed Bath & Beyond became one of the well-known meme stocks thanks to its short interest.
This retailer had a huge short interest build up in its stock because so many people were betting on its demise. For years, the retail sector has been made up of the haves and the have-nots.
That is, either retailers were doing well and leveraging e-commerce or they were doing poorly. For quite some time, Bed Bath & Beyond was in the latter group. Then Mark Tritton came along as CEO in November 2019.
While Tritton took over just months before the novel coronavirus pandemic, the retailer’s larger push into e-commerce and omni-channel solutions paid massive dividends when the pandemic struck.
Moreover, Tritton & Co. continues to lean into those transitions while shedding underperforming brands. This will allow margins to expand, free cash flow to increase and for the company to buy back even more stock than it already is.
It will be a multi-year turnaround effort, but if it works, shareholders will likely be rewarded. On that note, analysts expect the company to lose 11 cents per share this year, up big from last year’s loss of 98 cents a share. That’s despite a near-15% decline in revenue. See how shedding the underperforming brands is working and boosting margins?
Additionally, in 2023, estimates call for earnings of 72 cents per share, then for profit of $1.21 per share in 2024.
Meme Stocks to Watch Now: C3.ai (AI)
It went public at a huge valuation and its pre-IPO — or initial public offering — price kept climbing. When it finally opened, C3.ai started trading at $100 on the dot. I was bummed. I had been following the company for years, well before most investors had even heard of them. To not get a shot at it was disappointing, although it turned out to be a blessing in disguise.
Shares rallied to a high of almost $184 a few days later and before January 2021 when most meme stocks underwent a blow-off top. C3.ai stock is now down 89% from those highs!
As we look at it with fresh eyes now, there’s still a concern that this stock will head lower. Keep in mind, if C3 hits $10 a share, it’s just a little further down from the high, but a full 42% lower from current levels. I’m not saying I think it will go there, but I’m just putting the risk in perspective.
That said, it does have some merits. C3.ai is fresh off an earnings and revenue beat from March 2. It helps that guidance came in ahead of expectations too. The company has almost $1 billion in cash and equivalents vs. a $2.2 billion market cap and just $4.5 million in total debt.
Coupled with estimates calling for revenue growth of 37% in 2022, 33% in 2023 and 28% in 2024, I think there could be some long-term potential here.
The company’s spending is a concern, as are the losses. But if these are corrected, shares will fly.
On the date of publication, Bret Kenwell was long ROKU, UPST. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.