Meme stocks became a cultural sensation when Gamestop (NYSE:GME) went parabolic in 2021. The move shocked many investors and put short sellers in a challenging spot. However, it also hurt many retail investors. This has led us to reveal the worst meme stocks.
After witnessing GameStop’s success, many investors flocked over to other meme stocks. These meme stocks didn’t achieve returns like Gamestop, but some of them still doubled or tripled within a short amount of time.
Meme stocks attracted speculators hoping to do well with well-timed gambles. The majority of meme investors knew the underlying business models were in trouble, but many wanted to test how high these stocks could go. Stocks like Gamestop eventually crashed and shed most or all of their meme rally gains.
Some stocks have benefitted from meme rallies in 2023. The shockingly good year-to-date performance of the Nasdaq-100 so far has inspired more spectators to enter the market. However, if you have any of these three meme stocks, you may want to get out of them before it’s too late.
WeWork (WE)
WeWork (NYSE:WE) may not look like a meme stock at first glance. Shares are down by approximately 90% year-to-date and have been steadily declining the entire time.
Until recently.
WeWork experienced a 69% rally from August 9th to the 14th on the news of a possible bankruptcy. That’s not a catalyst for growth, and neither is the company’s proposed 40-for-1 stock split to maintain listing requirements. This helps to make it one of those worst meme stocks.
WeWork is in financial chaos at a time when commercial real estate is on a shaky foundation. WeWork’s business model was unsustainable from the start, and it’s been catching up with the company.
While other meme rallies can last for a few months, this rally already seems to have withered. Shares only netted a 7.8% gain from August 9th to the 18th, demonstrating how quickly the gains have vanished.
Nikola Motors (NKLA)
A quote from Maya Angelou summarizes how I feel about Nikola Motors (NASDAQ:NKLA). The quote reads as follows: “When people show you who they are, believe them.”
Nikola has been mired in controversy ever since its public offering via a SPAC merger. CEO Trevor Milton lied to investors about the company’s technology. The SEC charged Trevor Milton with fraud, and yet the company still stands.
Under Milton’s leadership, the company made lofty promises that it never delivered on. Nikola Motors says they have changed course, but it’s hard to believe them. It’s hard to assume Milton was the only insider who knew about the company’s true condition.
It’s even harder to take the company seriously after its level of deception. While the company has delivered some vehicles, the numbers are not impressive. Nikola Motors delivered over 111 battery-electric trucks in the second quarter. 45 trucks were wholesale and 66 were retail.
Does a company deserve a $1.5 billion valuation if it only delivered 111 trucks in the second quarter? The company plans on releasing hydrogen fuel cell electric trucks in the third quarter and currently sells zero-emission trucks. I don’t know about you, but I prefer the companies that are selling millions of gas-powered trucks each year, actually report profits, and don’t use hopes and fantasies as the main investment thesis. All in all, it’s one of those worst meme stocks.
I want to invest in companies that are already doing well and delivering on their promises. I am not a fan of companies that promise the world, get caught lying, and then try to promise the world a second time and see if no one notices the pattern.
It is very hard to justify the valuation and the company’s reputation. Shares have more than tripled since the start of June due to pure speculation. Investors who look at the company’s fundamentals instead of the hype will stay as far away as possible.
AMC (AMC)
AMC (NYSE:AMC) was a fan-favorite alongside Gamestop during the peak of the meme stock rally. The company’s APE stock conversion plan shows that leadership is playing to the meme craze to accumulate more capital.
Unlike the other meme stocks, there are actually some reasons to consider AMC stock. The company reported record revenue in the third quarter due to more demand for recent movies. Revenue jumped by 15.6% year-over-year and net income came in at $8.6 million. The net income figure is a significant improvement from last year’s $121.6 million loss.
However, a few problems are emerging that look poised to hurt the stock’s value. The Hollywood Strike will limit the number of movies that get released which will give consumers fewer choices at movie theater chains.
Furthermore, macroeconomic concerns, such as rising inflation and interest rates can lead to people pulling back on discretionary purchases. The return of student loan payments in September certainly won’t help the theater chain or stocks in general. However, macroeconomic concerns can have a larger impact on smaller companies like AMC compared to large-cap companies with good balance sheets. Consumers may stay at home and use streaming platforms instead of driving to AMC theaters.
On the date of publication, Marc Guberti 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.
