Shares of consumer products company Aterian (NASDAQ:ATER), formerly known as Mohawk Group, shot up 24% Tuesday to close at $5 a share.
Aterian’s business model is to sell a variety of consumer products through e-commerce channels. It claims to have artificial intelligence that helps it automate and drive performance for various products across large e-commerce marketplaces. In theory, this was supposed to be combined with an active mergers and acquisitions program that would plug new products into these sales channels and show strong growth.
Yet, while this all sounds good on paper, ATER stock plummeted from an all-time high just below $49 in February 2021 to a low of $2.10 in mid-March of this year — a 96% drop.
But since then, ATER stock has rebounded 138%. This may have some investors wondering whether Aterian is finally turning the corner. Probably not.
Over the past month, Aterian has not generated much news to back up the share price increase. It added one new person to the board of directors and it put out a press release citing an industry ranking that said the company had grown quickly between 2017 and 2020.
Instead, the massive runup in ATER stock appears to be the result of a short squeeze fueled by heightened interest on social media.
What we do know is that Aterian’s fourth-quarter and 2021 results were disappointing — yet another letdown in a year full of them. Contribution margin plunged once again, this time from 11.2% to 7.9% with the company pointing to supply chain problems and inflation as the root causes.
The company aims for a contribution margin of 16%, which now means it is achieving just half of its intended target. It seems risky for Aterian to pursue more new products and acquisitions when it is failing to get desired results from its existing lineup of brands.
That’s not all. The company’s adjusted EBITDA slipped into the red for Q4. While the quarterly net loss was smaller on a year-over-year basis, much of that apparent improvement came from Aterian not having to pay certain potential earn-outs on acquisitions (and thus recording an accounting gain) since those acquisitions failed to hit contractual revenue milestones. That’s not the most optimal way to reduce one’s accounting losses.
Forward guidance also pointed to inflation and supply chain issues continuing to be a drag on 2022 results. So, there’s little indication that the company is going to markedly improve.
Bulls can argue that shares were too cheap at $2 and if management can turn margins around, there’s value in Aterian. That’s a fair point. However, much of the social media chatter on ATER stock appears to be just folks hoping for some sort of infinity short squeeze a la GameStop (NYSE:GME) rather than any actual fundamental thesis.
Lightning could always strike again. But Aterian is not a well-known brand and doesn’t have much nostalgia value for traders. And there’s certainly not much in the fundamentals to support a significantly higher price for ATER stock.
On the date of publication, Ian Bezek 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.