Meme stocks burst onto the investment scene, notably when GameStop (NYSE:GME) launched to astronomical heights in 2021, leaving both seasoned investors and short sellers dumbfounded. Yet, this meteoric rise was a double-edged sword, spotlighting potential meme stocks to sell. The sizzle of GameStop’s success lured numerous speculators, with various meme stocks rising by double or even triple-digit margins. Most savvy participants recognized the fragile foundations of these stocks, but the allure of these trajectories proved too tempting to resist. Sadly, gravity took hold, pulling GameStop and others back down, erasing their dazzling gains. Hence, holding onto certain meme stocks now might be playing with fire.
Peloton (NASDAQ:PTON) is among these meme stocks to sell due to its horizon appearing rather clouded in the aftermath of product recalls and a noteworthy surge in insider stock sales. Its most recently released quarterly report showed per-share losses nearly doubling compared to market expectations with lackluster forward guidance, which led to multiple analyst downgrades.
Coupled with a rising churn rate and dreary new subscriber additions, one might ponder if the luxury exercise brand is at its saturation point amongst its target demographic. While its management points to seasonality as a culprit, the undeniable reality is that the company will continue to falter in the post-pandemic world, with inflationary pressures damaging future growth prospects. Amid this turbulence, whispers of a potential acquisition have become louder. A buyout might be the silver lining they’re hoping for — for the company’s sake and its investors.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) is attempting to rise from its ashes, rallying significantly after a series of market updates, including a $25 million share buyback initiative. A bold maneuver, considering its share price has dropped 90% since February, compounded by a trio of reverse stock splits this year alone. Moreover, despite landing a $63 million purchase order recently, its balance sheets tell a story of a company in duress, grappling with massive operational outflows and a rising cash burn rate, which saw them expending roughly $70 million in the first half of this year.
Its second-quarter results showed zero revenues and steep losses as the spotlight shifts glaringly onto its operational inefficiencies, setting off alarms about the sustainability of its financial health. While its management remains buoyant, projecting sufficient capital to tide over a year, the massive gap between the company’s expenditures and anticipated revenue points to a major liquidity crunch.
Next on the list of meme stocks to sell now is WeWork (NYSE:WE). The company’s been dealt a harsh hand by fate, with its primary business model of offering shared workspaces taking a monumental hit in the wake of the Covid-19 pandemic’s work-from-home mandate.
To make matters worse, its recent 10-Q filing carried a ‘going concern’ statement, triggering a steep decline in stock value. This inclusion wasn’t merely a reflection of external circumstances but a testament to its weak financials. Drilling into the numbers, the firm burned through a massive $246 million from its operations during the second quarter and reported meager liquidity of $680 million by the conclusion of June. Despite previous attempts at overhauling its balance sheets, the business’s core viability is in question. Moreover, alarm bells are ringing louder, with Wall Street firms exploring bankruptcy avenues for WeWork and the NYSE initiating steps to delist its warrants.
Carvana (NYSE:CVNA) has enjoyed a meteoric rise this year, soaring over 930% since January. Yet, diving deeper into the company’s fundamentals and the broader market landscape raises major concerns. Recent Carfax data signals an industry-wide depreciation in used car valuations, and with the company already grappling with razor-thin margins, the trend is worrying. By noticing these falling prices, consumers are more likely to opt for local bargains over Carvana’s pricier home delivery service.
Moreover, car financing costs climb as the Federal Reserve continues to hike interest rates. Despite used car prices showing a modest decline, they’re still considerably higher than pre-pandemic levels, as my fellow InvestorPlace contributor Rich Duprey discussed. He highlighted how the average used car cost is $29,472, a 46% jump higher from pre-Covid times on Edmunds.
Morgan Stanley’s analysts echo these reservations. Following Carvana’s sharp stock reversal, its recent downgrade suggests its valuation is unjustifiably high.
AMC Entertainment (AMC)
The stock market turbulence hasn’t spared movie theatre giant AMC Entertainment (NYSE:AMC). While its second-quarter performance showcased a 15.6% year-over-year () revenue spike and an encouraging net income of $8.1 million, a closer look reveals vulnerabilities. The company bled $13.4 million in its most recent quarter, set against the backdrop of a rather limited liquidity pool of $643 million, with a towering debt of over $9 billion casting a long and worrisome shadow.
AMC’s strategy of offloading its preferred equity units, aimed at buffering its debt, poses another problem involving potential shareholder dilution when these units convert to common shares. On top of that, there is the challenge of digital streaming and the scarcity of genuine blockbuster movies. With ongoing strikes in Hollywood, the content reservoir risks running even drier.
While enthusiasts of GameStop remain optimistic, closer scrutiny paints a concerning picture. Not having tasted profit since 2018, the company’s situation appears dire. Even with Executive Chair Ryan Cohen’s commendable visions for reviving GameStop, the current economic dynamics hinder any immediate turnaround. Moreover, its status as a consumer discretionary stock will likely face the brunt when consumers tighten their belts.
While surpassing expectations and recording a 2.4% YOY growth largely due to strong software sales, GameStop’s recent second-quarter figures do little to negate the underlying issues. Additionally, there was a substantial 23.9% drop in collectible-related revenues, and despite the periodic improvements, the larger trajectory of GameStop appears uncertain. The continual erosion in collectible sales and hurdles in transitioning to digital gaming amplify these concerns. All indicators point towards caution, and those with stakes in GameStop might want to consider exiting sooner rather than later.
Fisker (NYSE:FSR), once riding high on the EV wave, is now facing the harsh realities of being an overvalued stock amidst a tightening economic environment. Moreover, recent announcements of substantial production cuts do little to boost confidence in this up-and-coming EV maker.
The numbers spell out the problem. Fisker’s had already reduced its current year production projection, initially set at 36,000 vehicles, slashing it further to somewhere between 20,000 and 23,000, a staggering dip from the previous estimate. This reduction is particularly concerning for a company that’s already eyeing greater market share. While aiming to mirror Tesla’s success in the luxury EV niche, Fisker’s efforts are faltering, evident from their Ocean SUV sales coming up short at just 1,022 units in the second quarter against a projected 1,700.
Fisker’s ambitious roadmap promises seven models by 2027 and a target of one million annual vehicle production by then. However, given the current trends, such aspirations seem more like a moonshot. You’ll definitely want to consider adding FSR to your list of meme stocks to sell.
On the date of publication, Muslim Farooque 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.