Do you like to get in and out of meme stocks for a quick profit? If so, then it’s fine to hold Yellow (NASDAQ:YELL) stock for a brief period of time. On the other hand, a long-term investment in Yellow will probably only bring you a truckload of pain.
Yellow is a shipping, trucking and logistics business that’s headquartered in Nashville, Tennessee. Hedge fund MFN Partners reportedly acquired a 24.6% stake in Yellow. Mutual fund giant Vanguard Group is also among the freight company’s major investors.
As we’ll discuss in a moment, legions of small-scale traders are also interested in Yellow. Does this mean that you should start a share position today? Before you hit the “buy” button, be sure to conduct your due diligence on Yellow as you’ll undoubtedly discover some glaring red flags.
YELL Stock Gets a Short-Squeeze Boost
YELL stock has lost the vast majority of its value since 2004. Yet, in late July and early August, the stock suddenly rallied from 50 cents to more than $3.
The recent revival in meme stocks and short squeezes can easily explain the unexpected rally in the Yellow share price. This explanation makes the most sense, since Yellow didn’t actually gain 5x or 6x value as a company.
According to Yellow’s most recently released financial report, the company showed year-over-year declines in revenue per shipment, shipments per workday, tonnage per workday and other metrics in the less-than-truckload (LTL) category.
Not long after that, Yellow claimed that its logistics business is flourishing. However, at the same time, Yellow disclosed that it was in discussions to divest that logistics business.
Yellow and the Dreaded ‘B’-Word
I just pointed out some yellow flags for Yellow. Yet, there’s a huge red flag — perhaps the worst one of all. In particular, The Wall Street Journal reported that Yellow is shutting down its operations and “has $1.3 billion in debt maturities next year.” Furthermore, Yellow disclosed that it has “filed voluntary petitions for relief under Chapter 11 … of the U.S. Bankruptcy Code.”
These alarming developments haven’t stopped some traders from backing up the truck to buy YELL stock. After all, when a meme stock gets going, it can keep running for a while irrespective of recent news items.
Yellow may be close to finalizing a deal with investment firm Apollo Global (NYSE:APO) for a bankruptcy loan. However, investors shouldn’t assume that Yellow will be able to revive its operations or pay off its debt burden.
Some folks might find it exciting that YELL stock can double in a day prior to a probable bankruptcy filing. Personally, I prefer not to touch this powder keg of a stock as it’s liable to fall just as fast as it rose.
YELL Stock: Only for Traders, Not for Investors
If you’d like to take a meme-stock ride with Yellow for a day or two, or maybe a week at most, be my guest. Just be prepared to possibly lose everything on that trade.
Serious investors, in contrast, shouldn’t touch YELL stock with a 10-foot pole. The freight business might be intriguing, but now that the “B”-word is in play, a long-term stake in Yellow will likely only put your account in the red.
On the date of publication, David Moadel 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.
