The hype surrounding meme stock investments has died down considerably from its 2021 heydey. We largely have 2022’s bear market to thank for that. Well, that and the decline in retail trading as things got back to normal following the coronavirus pandemic.
However, 2023’s bull market and the hype surrounding artificial intelligence (AI) are bringing more retail investors back to their brokerage screens. And with this has come a renewed interest in meme stocks. After falling 63% in 2022, the Roundhill Meme ETF (NYSEARCA:MEME) is up 64% so far in 2023.
While risky, the meme stock investment realm presents opportunities for outsized gains as social media chatter amplifies price movements. However, there are plenty of meme stocks to avoid due to fundamental issues at the underlying companies making the investments too risky. Below are three such names.
Tilray Brands (TLRY)
The Canadian cannabis industry is grappling with major challenges, and it seems Tilray Brands (NASDAQ:TLRY) is feeling the heat. The company has seen its share price nearly cut in half over the past year, and the stock is down almost 90% over the past two years. Ouch.
Oversupply issues, black market competition, high taxes and regulatory fees, and stalled legalization efforts in the United States have made it difficult for Canadian cannabis companies like Tilray to turn a profit.
While growth investors might be able to forgive the lack of profits, revenue was down 4% on a year-over-year basis to $145.6 million in the most recently reported quarter. And, as The Motley Fool’s David Jagielski points out, revenue growth “has been on a downward trend for multiple quarters.”
Additionally, Jagielski takes issue with Tilray’s decision to acquire cannabis producer Hexo for $56 million, noting that the move will be dilutive to current shareholders and that Hexo is also losing money.
In short, even at these beaten-down prices, there are simply too many headwinds facing Tilray to make it a good investment. Put TLRY on your list of meme stocks to avoid.
Peloton Interactive (PTON)
Peloton Interactive (NASDAQ:PTON), once the star shining of the pandemic’s workout-from-home trend, is struggling. As fitness enthusiasts headed back into the gym, the market for its high-priced bikes and treadmills dried up.
After soaring to great heights in early 2021, the stock has come crashing down. While shares are up 20% year to date, they sit more than 90% below their former high.
Shifting consumer preferences have forced the company to change tack, repositioning itself from a high-end equipment manufacturer to an exercise streaming service. This pivot managed to lure some investors back.
However, Peloton’s Achilles’ heel seems to be its business model. The company reported a loss of $275 million in its most recently reported quarter despite a 5% year-over-year increase in connected fitness subscribers and belt-tightening efforts.
Part of the issue is that Peloton’s offerings struggle to stand out from myriad other fitness streaming platforms. And with its array of tiers and pricing, Peloton’s membership structure feels clunky. I wouldn’t bet on the rebrand paying off in the way the bulls hope it will.
Beyond Meat (BYND)
Beyond Meat’s (NASDAQ:BYND) stock sizzled when its meat-alternative burgers burst onto the scene, but things seem to be cooling down rapidly. Although shares have advanced nearly 40% in 2023, they are still down more than 50% over the past year and down 86% over the past two years.
Although the health-conscious public initially embraced Beyond Meat’s philosophy with open arms, doubts over its nutritional merits have started to marinate. Given the higher cost compared to traditional meat, Beyond Meat’s environmental benefits remain the only unique selling point for many.
Recent financials paint a bleak picture for Beyond Meat, indicating that the plant-based meat frenzy might have simmered down. The company saw a 16% year-over-year drop in revenue for the first quarter and posted a loss of $59 million.
Declining sales and shifting consumer perceptions pose a real threat to the company’s share price. Add in growing investor discontent and lawsuits and you have a recipe for a meme stock to avoid.
On the date of publication, Muslim Farooque 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
