Speculators are diving back into meme stocks as they consider what the court rejection of AMC Entertainment’s (NYSE:AMC) proposed settlement with its stockholders means.
The court’s decision — blocking the conversion of AMC Entertainment Preferred Equity Units (NYSE:APE) into AMC common stock — may have gotten the ball rolling for the “mother of all short squeezes” over the weekend. The decision has also caused traders to reconsider their view on other meme stocks like Gamestop (NYSE:GME), Koss (NASDAQ:KOSS) and Meta Materials (NASDAQ:MMAT).
They shouldn’t.
Meme Stocks: Lose Like You Meme It
Small traders have been piling into money-losing companies, spurred on by “memesters” posting on Reddit and Stocktwits. These voices claim that big gains are possible by squeezing short sellers.
Of course, gains are possible. But it’s a delicate psychological game. When a short squeeze reverses, small investors are often left holding worthless shares.
Consider the case of Mullen Automotive (NASDAQ:MULN) stock. For a year, I have been writing about how the company can’t meet its promises. Management keeps promising gains, but always in the next quarter.
Yet there are still people at Stocktwits boosting this penny stock. Shares of MULN currently sell for about 13 cents apiece with a market capitalization of under $90 million. Tesla (NASDAQ:TSLA) was at $1.10 per share in 2010, one writes. The stock is selling for less than the value of its cash on hand, writes another. Buy now, take advantage, they say.
That may be true. But pilot programs to drive around casino parking lots aren’t meaningful sales. Mullen has almost no chance of generating meaningful revenue, especially with prices on electric vehicles (EVs) falling rapidly. EV makers without scale or enormous amounts of capital are not going to make it. Even some with scale and capital are on the ropes.
The Bottom Line
The siren song of the memesters is really no different from that of Charles Ponzi, Bernie Madoff or Sam Bankman-Fried. Yet people insist on falling for get-rich-quick schemes, based on tips no better than the lucky numbers you read on fortune cookies.
There’s no way to know the real position of an anonymous social media poster telling you to buy a given stock. That’s why InvestorPlace contributors always disclose whether we have any positions, long or short, before we write.
Realistically, I also have no exact idea what the short-term moves of any stock will be. Neither do you. And neither do these tipsters.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Dana Blankenhorn did not hold (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.
