A cursory glance at this list of the top trending stocks on the Reddit’s r/WallStreetBets subreddit quickly yields an obvious fact: 2022 has not been kind to that grouping of Reddit stocks.
In fact, six of the seven most trending stocks are down to begin the year.
Of course, that doesn’t mean that they will stay that way. As the common SEC disclosure rule 156 notes, past performance is not indicative of future results. Trends don’t hold indefinitely, and that’s what we’ll look at in this article.
That rule is mostly meant to dissuade investors from chasing gains. But, on the flip side, some investors also use past performance to make speculative investments. Falling stocks don’t always fall forever and many investors attempt to time low prices.
Given that the top trending r/WallStreetBets stocks are almost all down in 2022, that’s what we’ll be doing: Judging whether these Reddit stocks should logically rise moving forward
- Virgin Galactic (NYSE:SPCE)
- Palantir Technologies (NYSE:PLTR)
- Tesla (NASDAQ:TSLA)
- Lucid Technologies (NASDAQ:LCID)
- IronNet (NYSE:IRNT)
- Canoo (NASDAQ:GOEV)
- SoFi Technologies (NASDAQ:SOFI)
Reddit Stocks: Virgin Galactic (SPCE)
Virgin Galactic is down approximately 40% in 2022. That of course isn’t a great way to begin a year. But I don’t see any reason for it to immediately rebound. There are a few reasons why that should be the case.
Most importantly is that Virgin Galactic still remains relatively far from commercialized space flight. Back in late February Barron’s reported that the company was climbing on the news. That article characterized it as a positive catalyst for the company. The idea that the company still plans to begin space flight sometime in the fourth quarter should bolster share prices throughout 2022. That’s the central thesis, anyway.
But Q4 is quite far away. And in the stock market prices move drastically over the span of a few quarters. If Virgin Galactic gives any hint that commercial flight will be delayed, it drops further. That means Virgin Galactic is still simply a bet.
The company hardly made any revenue in the most recent quarter. It posted $141,000 in Q4 and nearly $3.3 million in revenue in 2021. That changes drastically when operations begin. But the point is that operations remain far away.
Palantir Technologies (PLTR)
Palantir Technologies should rise because it has sustained growth in front of it and a low price point currently. Does that indicate that recent prices are absolutely at their lowest? No. Identifying a price bottom is not something anyone can do with repeated accuracy.
But given that Palantir has given guidance that annual revenue growth should stay at or above 30% through 2025, the future does indeed seem bright. It’s hard to imagine that investors will continue to punish it given such positive expectations.
PLTR stock became a publicly traded entity in September 2020 and its prices are now near IPO levels. It doesn’t deserve to trade there given how much it has grown and how much growth it predicts in the future.
Yes, Palantir is still losing money. The company posted a $520.38 million net loss in 2021. But that result was drastically better than the $1.166 billion net loss it suffered in 2020. Growth stocks will have their season again and Palantir’s growth expectations make it hard to ignore.
Tesla should trade sideways because investors have no way of reliably predicting what inflation and increased prices will mean to its bottom line. Musk queried his Twitter (NYSE:TWTR) audience about inflation expectations while discussing increases at his own companies.
At the same time, Tesla has raised prices across its range of vehicles in the range of 4% to 7%. So, Tesla has pushed its own problems onto consumers as most companies do during inflationary periods.
Price increases aren’t without precedent at Tesla. Similar price hikes didn’t hurt Tesla last year and its stock price traded higher in late 2021. But this period feels qualitatively different as consumers experience the worst inflation in the past four decades. This could be a round of price hikes that Tesla’s consumer base finally balks at.
Even if they don’t balk and sales levels remain it may be that inflation simply hurts the bottom line. Tesla’s price increases might not smooth over the effects of inflation. In other words, the bottom line could suffer due to inflation even if everything else remains as it is.
Reddit Stocks: Lucid Technologies (LCID)
Lucid makes are list of Reddit stocks as big losses combined with earnings disappointments indicate that now is not the time to invest.
But let’s start with the earnings disappointment and work our way back to overall losses. The problem for Lucid begins with disappointing revenue figures. The EV upstart generated just under $26.4 million worth of sales in the fourth quarter of 2021. That meant that the company fell more than $10 million short of expectations
A revenue miss doesn’t help Lucid’s case but operational and net losses should truly concern investors now. Lucid’s fourth-quarter operational loss of $485.7 million wasn’t that far from the $599.2 million operational loss it posted through all of 2020. And its Q4 net loss of $1.046 billion actually exceeded its $719.38 million net loss in all of 2020.
LCID stock may be trading well below analyst consensus expectations but there’s too much trouble now to have confidence that it can move up quickly.
IronNet could rise simply because it is a global cybersecurity firm in tenuous times. That is a reference to an increased threat as the war in Ukraine continues.
As sanctions continue the risk of cyber threats rises: “While there are no specific or credible cyber threats aimed at the U.S. currently, in February the Cybersecurity and Infrastructure Security Agency (CISA) warned that destructive malware against organizations in Ukraine may spread to businesses in other countries, especially as sanctions continue.”
That’s the catalyst that underlies a bullish thesis on IronNet right now. The company fell short of expectations last quarter but there is growth ahead. IronNet is trending but prices have slipped in 2022. I can’t see any definitive evidence that IronNet should perform well despite current catalysts given that it fell short last quarter.
Canoo is a reasonable bet for short sellers. And short interest sits at a very high 36.2% right now so investors are betting that it should decrease in price.
Investors who are hoping that GOEV stock will rise soon should probably think otherwise. That’s because a major shareholder sold off a large quantity of Canoo stock on March 16. Global Holdings Ltd. sold 10.5 million shares at $6.53. That’s not a particularly positive sign and GOEV shares are trading lower following the news.
The news of insider selling comes on the heels of a 9-cent-per-share earnings miss a few weeks ago. Investors should be hard-pressed to find any positives in that string of negative news. That strongly implies that Canoo’s troubles shouldn’t abate any time soon.
If it had already fallen behind other EV firms, consider this an indication that things are getting worse.
Reddit Stocks: SoFi Technologies (SOFI)
A further potential pause on student loans has SoFi Technologies moving lower. My colleague Shrey Dua recently wrote about the difficulty Morgan Stanley (NYSE:MS) is having in predicting the fintech’s direction.
The large bank had to downgrade SOFI stock to “equal weight” from “overweight” as the moratorium on student loans may extend beyond May 1.
Morgan Stanley was bullish on SoFi earlier due to expectations that the Biden administration would lift the pause on payments. But that didn’t happen earlier this year. Many are now predicting that the pause may be extended beyond May 1, thus continuing to throttle a chunk of SoFi’s revenue streams.
On the date of publication, Alex Sirois 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.