The impressive rallies of a number of top meme stocks in recent years have long since faded. Since the meme names’ rally in 2021, this group of highly volatile stocks has underperformed the stock market to a significant degree. That said, these stocks still periodically deliver short-term rallies that make them appealing to traders. Importantly, however, the macro environment has completely changed over the past two years. Specifically, interest rates aren’t zero anymore, and investors have other, viable places to put their capital besides stocks. Among those places are fixed-income investments and alternative assets. With that in mind, here are three meme stocks to avoid
The next bull market may be just around the corner. But if we continue in this elevated interest-rate environment for much longer, these three companies could be in trouble.
|BBBY||Bed Bath & Beyond||88 cents|
Bed Bath & Beyond
One of the most beaten-down meme stocks over the past year, Bed Bath & Beyond (NASDAQ:BBBY) is now trading right around its 52-week low. This home-goods retailer traded as high as $30 per share over the past year.
The main problem facing Bed Bath & Beyond is simple: its fundamentals aren’t strong enough to support its current valuation, which has already tumbled sharply.
Sure, the shares could rally sharply in the near-term, given how far they have fallen. That said, the company has remained on the verge of declaring bankruptcy for some time.
And as suppliers have curtailed shipments to Bed Bath & Beyond, the company’s lack of inventory on the shelves has led to a downward spiral in its revenue, as shoppers can’t find the goods they came to BBBY for in the first place. This is the sort of so-called death spiral that many investors don’t want to see.
Additionally, Bed Bath & Beyond operates in competitive, discretionary markets. Consequently, consumers have other options and may be cautious about spending their money on the retailer’s products.
In essence, the company may not be able to dig its way out of this hole, no matter how much belt-tightening it does.
It’s my view that Bed Bath & Beyond is is far more likely to declare bankruptcy than sharply rally. Thus, this stock remains among the top meme stocks to avoid.
There has been a lot of interest in and criticism of GameStop (NYSE:GME) in recent years, and many people have been attentively monitoring the moves of its stock. The original meme stock, GME has been on an incredible ride in recent years.
Since 2021, the company has had its fair share of positive catalysts, including the decision by Chewy (NYSE:CHWY) CEO Ryan Cohen to join the company. Moreover, some have suggested that GME can improve its fortunes by shifting to online sales to a greater degree.
Unfortunately, the firm has not yet made a big comeback, and the company’s stock price has fallen below its all-time highs, as its earnings reports continue to show massive losses.
As of October 2022, GameStop had total debt of approximately $575 million. As The Street reports, of that total, $378 million is long-term, combing long-term debt with long-term operating lease liabilities. Using these figures, GameStop has a 9% debt-to-enterprise-value ratio.
GameStop’s relatively low debt is a positive factor that reduces its default risk. However, if the company continues to generate losses each and every quarter, it’s going to be difficult for the shares to rebound tremendously.
I expect that the shifting landscape in the gaming sector will eventually lead to GameStop becoming the Blockbuster of the video-game world. Folks just won’t buy physical games anymore, and any other vertical markets that the company is attempting to enter are unlikely to drive the sort of profitability required to keep its brick-and-mortar locations open.
Another prominent meme stock that investors continue to watch, AMC Entertainment (NYSE:AMC), which climbed a great deal during the meme craze, has also languished in recent years. In a bid to contribute to saving the flailing theater chain, many retail investors piled into this name. To the company’s credit, it has been able to raise significant funds via the capital markets, helping to prevent it from declaring bankruptcy.
Unfortunately, the stock’s value has been undermined by the huge number of shares that the company has issued. Thus, AMC stock is unlikely to rebound to its pre-pandemic levels.
Like GameStop and Bed Bath & Beyond, the company’s financial picture isn’t great. The firm is weighed down by high-interest debt that it issued at unfavorable rates during the pandemic. Additionally, the company’s rent costs, which were previously deferred, will hamper its earnings moving forward. I expect AMC to remain unprofitable for some time.
In this market, investors simply don’t want to own unprofitable stocks., so there’s little hope of AMC climbing going forward. Accordingly, the fundamentals of AMC stock are definitely negative, even if the most insane bullish predictions about it come true.
On the date of publication, Chris MacDonald 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.