The search for the next meme stock has taken a bizarre twist. Retail investors are known for attempting to save the failing companies that Wall Street bets against. This strategy often fails, as was illustrated by the downfall of Bed Bath & Beyond. But now Rite Aid (OTCMKTS:RADCQ) stock may be marked for the same treatment.
This pharmacy chain filed for Chapter 11 bankruptcy earlier this week and has since announced plans to close 154 stores across the country. That sounds like more than enough reason for anyone still holding shares to dump them. However, Rite Aid stock is actually surging today by about 70% as of this writing.
When a cheap stock catches meme momentum, speculation of a short squeeze often follows. It can be tempting for investors to rush in and buy shares before they spike further. Instead, though, investors should proceed with extreme caution when it comes to Rite Aid.
Rite Aid Stock: The Next Ill-Fated Meme
After getting delisted from the New York Stock Exchange earlier this week, the new RADCQ stock has managed to rise 70% today. And that’s despite headlines screaming about Rite Aid store closures across the United States. This is eerily reminiscent of what we saw from Bed Bath & Beyond a few months ago. As you may remember, that story didn’t end well.
That alone should convince investors to steer clear of Rite Aid stock. Indeed, short squeeze hopes have been dashed multiple times this year as attempted rallies have failed to sustain momentum. With more and more Rite Aid locations shuttering from coast to coast, the chances of a turnaround for the firm are growing increasingly smaller. As CNN reports:
“While it has secured $3.5 billion in financing and debt reduction agreements from lenders to keep the company afloat through its bankruptcy, Rite Aid said it would accelerate store closures and sell off some of its businesses, including prescription benefit provider Elixir Solutions. Bankruptcy could also help resolve the company’s legal disputes at a vastly reduced cost.”
Some people may hope to see Rite Aid go the way of GameStop (NYSE:GME) or AMC Entertainment (NYSE:AMC) by developing a committed retail investor following. But anyone in that camp should consider this: Part of why strong interest in those companies persists is the nostalgia factor. Many people have spent hours shopping at GameStop or watching movies at their local AMC. Has anyone ever looked forward to shopping at their local Rite Aid? That’s hard to imagine.
The Writing Is on the Wall
With all that in mind, it makes more sense to compare Rite Aid to a company like Bed Bath & Beyond, which retail investors couldn’t save with short squeeze hype. As we now know, Bed Bath proved to be a poor investment; when the firm devised its bankruptcy recovery plan, it left nothing for investors. Now, Bed Bath is gone — and any number of meme stocks could be next.
If anyone needs further evidence that RADCQ stock is one to avoid, consider the fact that, while shares have risen as high as 75% today, the stock hasn’t surpassed 22 cents. Shares are likely to only lose momentum from here. All told, Rite Aid won’t be the next GameStop, but it could be the next Bed Bath & Beyond. That’s not a title any company wants.
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On the date of publication, Samuel O’Brient 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.
