The meme stock craze is, thankfully for many, behind us. What was an incredible run in 2021 has given way to outright declines for most heavily-traded and heavily-shorted meme stocks. In fact, no companies have held their 2021 highs, moving even higher last year or this year, on subsequent rallies.
For many investors, this flash in the pan was one to go down in the history books. Indeed, plenty of books and movies have been made about this whole ordeal. More will be made, and investors will continue to focus on companies with high social media interest as potential short squeeze candidates.
So, specific meme stocks are holding seriously risky at current levels. These companies have valuations that remain elevated due to retail investor interest. Yes, the David vs. Goliath story is a compelling one for many looking to take down the greedy hedge funds that have suppressed stock prices for a long time. But it’s also true that the pendulum has often swung way too far in the opposite direction as a result of this movement. Let’s talk about three stocks that are solid sells in this regard.
AMC Entertainment (AMC)
Each of the companies on this list have secular headwinds worth noting. However, for investors in AMC Entertainment (NYSE:AMC), secular headwinds are simply too strong to ignore.
In essence, streaming has killed demand from a large swath of former movie goers. The decision? Should you spend $50-$100 on a family movie outing at the theater or simply wait for the movie to come out on one of the streaming platforms? It’s a debate many of us have.
Most households with high-resolution TVs and a penchant for not having their seat kicked or someone texting in front of them will choose to simply enjoy a movie in the comfort of their own home.
With foot traffic declining in most major markets, and a balance sheet burdened by pandemic-related debt, AMC has been forced to issue a significant number of shares recently. This dilution is an extreme negative for investors putting fresh money into this stock.
In my view, AMC stock is headed to zero. Maybe not today or tomorrow, but eventually this company will go the way of yesteryear.
GameStop (GME)
Another industry that’s slowly being transitioned out of consumers’ lives is physical video game purchases.
Gone are the days of going to the local GameStop (NYSE:GME) to select a few used games to play at home, before trading them back in for store credit. Most gamers who want the latest and greatest games simply wait for midnight on release day, and click “download” from the comfort of their own home. No more camping out at stores overnight.
To be sure, GameStop’s offering is nostalgic. The meme stock rally that GME saw in recent years has likely reflected this positive memory from so many Millennial investors, eager to save their favorite retail store in their local mall.
For now, the company has been saved, and its valuation remains extremely elevated. With a whopping market capitalization of $4.5 billion, GameStop remains valued as if it will be profitable for a long time. However, after posting some surprise quarterly profits, the company has slipped back to churning out losses. Unfortunately, this trend may likely continue, and the company will slowly bleed out.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) is one of of those previous pandemic darlings, turned meme stocks. It had an impressive run in previous years. A highly-shorted stock more recently, Mullen has benefited from a certain degree of retail investor support to stay alive.
However, as we’ve seen unfold in recent days, the company’s management team is recognizing key risks. A potential Nasdaq delisting has plagued the stock. This forced MULN to engineer a reverse stock split to solve for this issue. In light of this concern and others, the company’s CEO recently penned an open letter to shareholders to assuage concerns and drive demand for this stock.
This move highlighted many milestones the company has achieved on its bid to becoming a true EV producer. Orders and other factors were also discussed, suggesting the company has a future in the increasingly-competitive EV space.
It’s my view, much better options exist for investors looking to ride the secular tailwinds in this space. Mullen is a company on very precarious financial footing, as its stock price suggests. The market is already pricing this company going to zero, and investors should take this warning seriously.
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.
