Despite the fundamental weakness, meme stocks made headlines last year due to their skyrocketing short-squeeze rallies. Retail investors got together on popular social media forums like Reddit’s WallStreetBets (WSB) to make aggressive bets against hedge funds, causing unprecedented rallies in some fundamentally weak stocks. However, these stocks could not sustain the price levels they reached.
After a pause for a few months, the meme mania has recently returned, leading various struggling stocks to soar considerably. However, these fundamentally weak stocks are expected to soon return to earth from their unsustainable levels amid the uncertain macro environment, resulting in massive losses for retail investors.
The August Consumer Price Index (CPI) report showed that inflation rose 8.3% year-over-year, higher than the economists’ expectations. The stubborn inflation is expected to spur the Fed to keep increasing interest rates, potentially triggering a recession. These factors are expected to keep the stock market under tremendous pressure in the upcoming months.
Hence, fundamentally weak meme stocks Roblox Corporation (RBLX), AMC Entertainment Holdings, Inc. (AMC), and Bed Bath & Beyond Inc. (BBBY) are best avoided now.
Roblox Corporation (RBLX)
RBLX operates an online entertainment platform. The company provides Roblox Studio, a free toolset for developers and creators to build, publish, and run 3D content; Roblox Client, an application that allows exploring the 3D digital world; Roblox Cloud, which provides cloud-based services and infrastructure; and Roblox Education for learning experiences.
In the fiscal 2021 second quarter ended June 30, 2022, RBLX’s costs and expenses increased 27.5% year-over-year to $761.47 million. Its loss from operations widened 19.1% year-over-year to $170.27 million. Its adjusted EBITDA declined 69.7% year-over-year to $54.64 million.
In addition, the company’s net loss attributable to common stockholders came in at $176.44 million, worsening 25.9% year-over-year. Its net loss per share attributable to common stockholders widened 20% from the year-ago value to $0.30. Also, free cash outflow amounted to $57.32 million, compared to the $168.02 million inflow in the prior-year period.
Analysts expect RBLX's loss per share to amount to $0.31 for the fiscal 2022 third quarter ending September 2022, worsening 137.3% from the same period in 2021. Also, the consensus loss per share estimate for the current year (ending December 2022) is expected to widen 24.4% year-over-year to $1.21.
RBLX’s shares have declined 11.4% over the past month and 54.4% year-to-date to close the last trading session at $45.07.
RBLX's POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RBLX has an F grade for Stability and Sentiment. It has a D grade for Growth, Value, and Momentum. Within the 22-stock Entertainment - Toys & Video Games industry, it is ranked the last.
To see additional POWR Ratings (Momentum, Growth, Value, and Quality) for RBLX, click here.
AMC Entertainment Holdings, Inc. (AMC)
AMC is a leading theatrical exhibition company that delivers distinctive and movie-going experiences. The company owns, operates, and has interests in theaters in the United States and internationally. It runs more than 950 theaters and 10,600 screens.
In February, AMC completed a private offering of $950 million in aggregate principal amount of 7.5% senior secured notes due 2029. This note offering is expected to increase the company’s debt and interest.
For the fiscal 2022 second quarter ended June 30, 2022, AMC’s operating costs and expenses increased 59.5% from the year-ago value to $1.18 billion. The company’s operating loss and net loss amounted to $16.10 million and $121.60 million, respectively. Its adjusted loss per share came in at $0.20 for the second quarter.
Furthermore, the company’s cash outflow for operating activities amounted to $76.60 million. As of June 30, 2022, its cash and cash equivalents stood at $965.20 million, compared to $1.59 billion as of December 31, 2022.
Analysts expect the company's loss per share to amount to $0.23 for the fiscal 2022 third quarter ending September 2022. In addition, the consensus loss per share estimate for the current fiscal year 2022 (ending December 2022) is expected to come in at $1.10. The company has missed the consensus EPS estimates in each of the trailing four quarters.
The stock has plunged 57% over the past month and 79.1% over the past year to close the last trading session at $9.91.
AMC’s POWR Ratings reflect this poor outlook. The stock's overall D rating equates to a Sell in our proprietary rating system. AMC has an F grade for Sentiment and Stability. Within the F-rated Entertainment-Movies/Studios industry, it is ranked #6 of 7 stocks.
Click here to access AMC's additional POWR Ratings (Growth, Value, Quality, and Momentum).
Bed Bath & Beyond Inc. (BBBY)
BBBY operates a chain of retail stores that sells domestic merchandise, home furnishings, consumables, and various juvenile products internationally. It also operates Decorist, an online interior design platform that provides personalized home design services.
In the second quarter, there was an acute shift in consumer sentiment as macro pressures materially escalated. This includes record-high inflation and fluctuations in purchasing patterns, leading to a dislocation in the company’s sales and inventory.
Sue Grove, BBBY’s Interim Chief Executive Officer, said, “The simple reality though is that our first quarter's results are not up to our expectations, nor are they reflective of the Company's true potential.”
BBBY’s net sales declined 25.1% from the prior-year period to $1.46 billion in the fiscal 2022 first quarter ended May 28, 2022. The company’s adjusted gross profit came in at $348.15 million, representing a 48.9% year-over-year decline. Its adjusted EBITDA loss came in at $224 million, compared to an $86 million gain in the year-ago period.
Also, BBBY’s adjusted net loss came in at $225.24 million versus a $4.93 million net income in the prior-year quarter. Its adjusted loss per share came in at $2.83, compared to a $0.05 EPS in the year-ago period. The company had $107.54 million in cash and cash equivalents, down 90.2% year-over-year.
The consensus revenue estimate of $6.11 billion for the fiscal year 2022 (ending February 2022) represents a 22.3% decline from the previous year. The consensus loss per share estimate of $6.90 for the current year indicates a widening of 539.3% year-over-year. Furthermore, the company has missed the consensus revenue estimates in each of the trailing four quarters.
The stock has slumped 54.4% over the past six months and 63.2% over the past year to close the last trading session at $8.76.
BBBY's POWR Ratings reflect its poor prospects. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. It has an F grade for Stability and Sentiment and a D for Growth and Momentum.
BBBY is ranked #58 of 62 stocks in the Home Improvement & Goods industry. Click here to see the additional ratings for BBBY’s Value and Quality.
RBLX shares were trading at $45.75 per share on Thursday morning, up $0.68 (+1.51%). Year-to-date, RBLX has declined -55.65%, versus a -16.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
3 Stocks You Shouldn't Go to Meme Extremes for in 2022 StockNews.com
