The meme-stock rally of 2024 was, for the most part, very short-lived. Moreover, most of the meme stocks became stocks to sell by quickly retreated to points not far above their pre-rally levels. A few factors, in my opinion, caused the surge to last such a short time and largely dissipate so quickly. First, retail investors lack the huge amount of excess cash that they had in the second half of 2020 and 2021. Secondly, it’s likely that short sellers learned from the meme stock rally of several years ago and subsequently developed strategies for dealing with it.
And finally, many Wall Street analysts declared that the meme stock rally was entirely unjustified. For example, Morningstar noted that Trading.biz analyst Cory Mitchell had declared that the rally of AMC stock was pure hype. And CNBC’s Jim Cramer quickly warned investors to sell meme stocks. Indeed, most meme stocks are still tremendously overvalued and have very poor fundamentals. Here are three meme stocks to sell now.
GameStop (GME)
Perhaps contributing to the termination of the meme-stock frenzy, GameStop (NYSE:GME) announced on May 17 that it would sell 45 million shares of GME stock. Even more discouraging for the owners of its shares, the struggling video-game retailer disclosed that it estimates its top-line tumbled 29% in Q1 2024 year-over-year. The statistic indicates that the company’s business is rapidly shrinking and heading for major problems.
What’s more, the company stated that the rally of its shares does not appear to be based on its underlying fundamentals. In other words, GameStop does not have a tremendous amount of confidence in its outlook.
Even after its recent, large pullback, GME stock is changing hands at a huge enterprise value-to-EBITDA ratio of 234 times.
Given all of these points, GameStop is definitely in the category of meme stocks to sell.
Faraday Future (FFIE)
Electric-vehicle maker Faraday Future (NASDAQ:FFIE) was founded way back in 2014 but did not make its first deliveries until Q3 2023. Moreover, the automaker, whose EV, the FF 91 2.0 Futurist, costs a dizzying $309,000, had reportedly only sold ten vehicles as of January 2024.
Further, an open letter from Faraday’s CEO, released in February, included no concrete indications that the firm had obtained a significant number of orders for the future. Nor did the letter include a clear strategy for obtaining orders.
Impressively, the company claims their EV is is faster than Lamborghini Urus, and has a range of 381 miles. It also has the ability to run many apps, including ChatGPT.
Still, the company only had cash of $6.7 million and debt of $135 million as of September 2023. That, along with its low revenue, makes FFIE a very dangerous bet at this point.
AMC (AMC)
Jim Cramer correctly pointed out that AMC (NYSE:AMC) may become insolvent in 2026 when it will owe a huge $2 billion.
I believe that if AMC doesn’t go under by that year, it will probably have to sell a gargantuan number of shares. Those massive share sales, in turn, will cause the stock’s value to plummet way below its current value.
Also not boding well for AMC’s outlook, attendance at its U.S. theaters sank 5.8% last quarter YOY. Meanwhile, its operations burned $268 million of cash in the 12 months that ended in March. The decline in the company’s U.S. attendance indicates that the popularity of movie theaters is once again headed downwards.
Despite all of these huge issues, the shares are changing hands at a relatively high enterprise value-to-EBITDA ratio of 21.8 times.
On the date of publication, Larry Ramer 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.
