Be Smart and Avoid Risky Meme Play Aterian Stock

  • Aterian (ATER) was and likely remains a meme stock
  • Earnings for ATER stock are on tap next week
  • Buying Aterian is an even riskier trade in today’s market
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It boasts year-to-date gains of more than 20%. And since bottoming alongside the broader market in mid-March, shares are up a stunning 130%. But it’s anything but a diamond in the rough, it’s Aterian’s (NASDAQ:ATER) stock.

A rising tide is said to lift all boats. And the phenomenon resonates with investors buying and selling the ebb and flow of the market. Then there’s a stock like Aterian with its bullish and market-bucking gains. So, what is going on in ATER? Not much in our estimation. And appreciatively, it’s not a mystery that’s going to dumfound Magnum P.I.

ATER stock is the next big thing or rather, one trading scheme that’s not fully unraveled in that subset of risk assets known as meme stocks. Today let’s look at why buying Aterian is bad idea for investors other than apish bulls. And even there, why the evidence to support a purchase is suspect at best.

ATER Aterian $4.9300

Why ATER Stock Is a Meme

GameStop (NYSE:GME). AMC Entertainment (NYSE:AMC). It’s no secret the pair remain the headline acts for meme stocks favored by a fast-acting and fast-talking Reddit crowd using gossipy mentions on WallStreetBets and primed short-squeeze candidates as the basis for their trading playbook.

But ATER stock has also looked and played a lucrative and agonizing part in those trader games as well. How so, you ask?

First, Aterian has buzzword cache to get the Reddit crowd excited. The company operates an e-commerce tech platform using seductive sounding machine learning, artificial intelligence and natural language processing to design, market and sell products online.

Second and importantly from a real or really out-of-this world trading vantage point, ATER stock has what it takes to satisfy. Shares sport weaker Street coverage, a small-cap valuation, very low float and measurable short interest to manufacture a squeeze operation. And that combination gave shares a decided advantage in being able to rally over the short-term. And boy did they ever!

From it’s low in December 2020, ATER stock was a slightly early entrant to the meme party as shares rallied from $6.75 to $48.99 by mid-February for a return of as much as 600% at the peak of meme stock mania. But as the saying goes, what goes up, must come down.

ATER Stock’s Even Riskier Meme Stock Status

Amid a soon-to-follow de-risking in the market that’s only grown more fierce in recent months, ATER stock is down 72% from its highs and 25% below it’s now much shakier meme stock beginnings with shares fetching $5.00. Moreover, it makes sense too.

At the moment investors have their pick of the litter when buying stocks on the cheap. And importantly, that includes many top blue-chip growth stocks such as Block, Inc. (NYSE:SQ) or Shopify (NYSE:SHOP) which have been similarly chopped down despite already proving themselves profitable leaders in their markets.

My guess is even investors that associated themselves with this past year’s meme stock movement have smartly moved on from ATER stock. A company whose shares feature less-than-attractive items like a rock bottom ISS Corporate Governance QualityScore of 10, red ink, as well as negative cash flow and weak cash balance which puts shares at risk of equity dilution.

The Takeaway

One could look at ATER’s recent volume and be impressed by the apparent buying power which helped the stock to more than double in price in April. More than a billion shares did change hands for the period. Again though, Aterian retains critical and heavier short interest. And the breakdown of legitimate buyers making an investment in ATER stock rather than flimsier meme traders and bears covering to close out positions shouldn’t be dismissed.

Next week ATER stock is headed to the earnings confessional. InvestorPlace’s Stavros Georgiadis discusses why the report is likely to disappoint. And I’ll just add that considering Amazon (NASDAQ:AMZN) and the undisputed bluest of blue-chip e-commerce companies already disappointed and given today’s riskier supply chain challenges, the potential for a miss and bearish reaction in ATER stock grows more likely in our estimation.

Bottom-line, if investors for some odd reason are still attracted to buying an at-risk ATER stock in front of earnings, the one thing shares do have working in their favor is a sufficiently liquid options market to hedge the position vis-à-vis a married put or collar combination. Alternatively and maybe more smartly, leave ATER stock at the door and simply buy a reduced cost and leveraged vertical spread.

On the date of publication, Chris Tyler 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.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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