The last few weeks have been quite eventful for meme stocks. Most notably, social media influencer Keith Gill, who goes by the alias Roaring Kitty, caused GameStop’s (NYSE:GME) stock to jump over 70%. How he did this is quite interesting. Those of you familiar with the Reddit community Wall Street Bets might remember the meme stock rally of 2021, where Reddit users colluded in order to make short sellers lose their positions. Gill was a key player in this rally. Recently, he posted a picture that showed him betting $116 million on GME stock, starting the frenzy that has started the conversation regarding when to sell meme stocks. Hanging onto these three meme stocks to sell right now might just make your returns laughable.
GameStop (GME)
GameStop is a specialty retailer that provides games and entertainment products through its stores and e-commerce platforms in the United States, although it also maintains operations internationally. The company sells new and pre-owned gaming consumables. Post a drastic price spike, GME is trading at $31.57, up 83% year-to-date.
GME has missed EPS projections in two of the last four quarters, which demonstrates the company’s volatility and unreliability. After making significant internal changes, the company was finally profitable last financial year, grossing $6.7 million, or a measly 0.13%. Additionally, 22.34% of GME’s outstanding shares are shorted, which indicates significant skepticism.
GME has only seen a spike in valuation due to the fact that one of the key players in the 2021 rally has shown some optimism. However, that doesn’t change the fact that GameStop remains a meme stock, with lackluster financials and inefficient operations, making it a strong sell.
BigBear.ai Holdings (BBAI)
BigBear.ai Holdings (NYSE:BBAI) provides artificial intelligence-powered decision intelligence solutions. It offers national security, supply chain management and digital identity and biometrics solutions. The company also provides data ingestion, data enrichment, data processing, artificial intelligence, machine learning, predictive analytics and predictive visualization solutions and services.
BBAI stock is overvalued and will likely raise funds by diluting investors in the next 12 months. It has an atrocious profit margin of -109.01% and an operating margin of -29.87%.
If that wasn’t enough, its balance sheet for Q1 2024 shows a net debt of almost 126 million dollars, which raises a lot of red flags since the company is not making any profits.
The combination of substantial net debt, negative profit and operating margins and the likelihood of stock dilution presents significant risks for investors. These financial challenges indicate that the company is struggling to achieve profitability and may need additional funding to sustain its operations, making it one of the meme stocks to sell.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) is a technology company that designs, engineers, manufactures and sells electric vehicles (EV), EV powertrains and battery systems. It also designs and develops proprietary software in-house for Lucid vehicles. The company sells vehicles directly to consumers through its retail sales network and direct online sales, including Lucid Financial Services.
LCID stock is currently trading at $2.79, with a market cap of $6.437 billion. Lucid had a moment as a meme stock a few years back, and it briefly revisited that moment with a surge earlier in May. The operating margin for this stock is -422.5%, indicating severe challenges in achieving profitability.
Despite its innovative technology and ambitious plans in the EV market, Lucid Group might fall short due to the competitive landscape of the EV market, dominated by established players like Tesla (NASDAQ:TSLA). Given its financial strain and the volatility associated with meme stocks, investors should approach LCID with caution. While the company has potential due to its advanced technology and market aspirations, the current financial metrics suggest a high-risk investment.
On the date of publication, Achintya Pasricha 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.
