Popularized by online community r/WallStreetBets and trading platforms like Robinhood Markets, Inc. (HOOD), meme stocks, such as GameStop Corporation (GME), witnessed a skyrocketing rally earlier this year. Retail investors have been significant market movers, causing short-squeezes in several stocks. However, the rally did not sustain for the majority of such stocks, given their weak fundamentals.
This month, a federal court in Florida dismissed one-third of a class-action lawsuit against HOOD for their roles in the GME short-squeeze. However, the case has not been closed, and retail investors have alleged that the company has neglected duty toward its customers and violated securities laws. In its twice-yearly update, the Federal Reserve has recently expressed concerns about meme-stock volatility, mentioning that they should be monitored to keep the broader financial system unaffected.
Therefore, meme stocks AMC Entertainment Holdings, Inc. (AMC), BlackBerry Limited (BB), and ContextLogic Inc (WISH) are best avoided in December, given their weak fundamentals.
AMC Entertainment Holdings, Inc. (AMC)
AMC operates in the theatrical exhibition business. The company owns, operates, or has interests in theatres. It functions across several theatres and screens in the United States and globally.
On November 15, law firm Miller Shah LLP issued a notice stating a class action lawsuit settlement, with a hearing date given on February 10, 2022. According to the settlement, AMC, on behalf of all defendants, is expected to pay $18 million in exchange for the dismissal of the suit without any lingering prejudice.
AMC’s operating costs and expenses increased 14.3% year-over-year to $908.40 million in the fiscal third quarter ended September 30. Net loss attributable to AMC came in at $224.20 million, while loss per share stood at $0.44.
Analysts expect AMC’s EPS to remain negative at least until next year (fiscal 2022). The stock has declined 7.9% over the past three months and 9.1% over the past five days to close Friday’s trading session at $37.63.
AMC’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AMC has a Value and Stability grade of F, and a Sentiment and Quality grade of D. In the 9-stock Entertainment – Movies/Studios industry, AMC is ranked #8. The industry is rated F.
Click here to see the additional POWR Ratings for AMC (Growth and Momentum).
BlackBerry Limited (BB)
BB, headquartered in Waterloo, Canada, is an intelligent security software and services provider operating worldwide. The company delivers solutions in cybersecurity, safety, and data privacy, by leveraging AI and ML.
On November 23, BB and Canadian Software-as-a-service accelerator, L-SPARK, announced their joint accelerator program’s third phase, aiming to grow Canadian technology start-ups in the connected vehicle scene. However, gains from this venture might be spread over an extended period.
For the fiscal second quarter ended August 31, BB’s adjusted gross margin decreased 43.5% year-over-year to $113 million. Adjusted net income and adjusted EPS came in at a negative 33 million and a negative $0.06, respectively, down 156.9% and 160% from the same period last year.
The consensus EPS estimate of a negative $0.21 for the current year (fiscal 2022) indicates a 216.7% year-over-year decrease. Likewise, the consensus revenue estimate for the ongoing year of $730.14 million reflects a decrease of 20.6% from the prior year.
BB’s stock has declined 11.8% over the past three months, to close Friday’s trading session at $9.97. It has fallen 7.6% over the past month.
It’s no surprise that BB has an overall D rating, which translates to Sell in our POWR Rating system.
BB has a D grade for Stability, Sentiment, and Quality. It is ranked #51 out of the 55 stocks in the Technology – Communication/Networking industry.
To see the additional POWR Ratings for Growth, Value, and Momentum, for BB, click here.
ContextLogic Inc. (WISH)
WISH operates as a mobile e-commerce company in Europe, North America, South America, and globally. The company’s offerings include the Wish platform that connects users to merchants and provides marketplace and logistics services to merchants.
On November 9, WISH announced its Wish Standards program to incentivize product quality and other positive experiences from its merchants. However, this initiative is expected to take some time before generating substantial gains for the company.
In August, shareholder rights law firm Robbins LLP announced that it was investigating officers and directors of WISH, for violation of the Securities Act of 1993, in connection to the company’s December 2020 IPO process.
WISH’s revenue decreased 39.3% year-over-year to $368 million in the third fiscal quarter ended September 30. Gross profit declined 54.2% from the prior-year quarter to $167 million. Net loss and net loss per share for the period came in at $64 million and $0.10, respectively.
Street revenue estimate of $317.63 million for the current quarter (ending December 2021) reflects a decrease of 60% from the same period last year. The street expects EPS to remain negative at least until next year (fiscal 2022). Moreover, WISH has missed consensus EPS estimates in three out of the trailing four quarters.
The stock has declined 50.6% over the past six months and 78.5% year-to-date, to close Friday’s trading session at $3.92.
WISH’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
WISH has a D grade for Stability and Sentiment. In the 77-stock Internet industry, it is ranked #57. The industry is rated F.
In addition to the POWR Rating grades we’ve stated above, one can see WISH ratings for Growth, Value, Momentum, and Quality here.
AMC shares fell $0.01 (-0.03%) in after-hours trading Monday. Year-to-date, AMC has gained 1,637.74%, versus a 25.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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