7 Meme Stocks Smart Investors Shouldn’t Touch With a 10-Foot Pole

Stocks to sell

Meme stocks represented one of the most remarkable developments in the equities space during much of the new normal. However, by 2022, this sector received a very rude awakening. To be fair, this space enjoys backing from powerful Internet communities, making a shorting proposition wildly risky. So, that’s not what I’m going to talk about. Instead, I will gently encourage you to consider limiting your exposure to these meme stocks to avoid.

Frankly, meme stocks have become far too risky. Although the party atmosphere (helped in no small part by the dramatic expansion of the money stock) bolstered enthusiasm, the Federal Reserve now seeks to unwind prior monetary excesses. Basically, this means deflation if left to run to its extremes. And that’s killer for speculation-driven investment categories.

Now, here are some ground rules to address this sensitive topic. First, I don’t own any of these meme stocks. Second, I rely heavily on Gurufocus.com to provide the facts as they stand regarding these speculative ideas. Third, I’m just presenting my findings.

You are free to agree or disagree as you please. And now, let’s talk about the meme stocks to avoid.

BBBY Bed Bath & Beyond $3.70
REVRQ Revlon $1.16
PTON Peloton $8.82
DKNG DraftKings $11.60
SPR Spirit AeroSystems $27.00
UPST Upstart $16.70
MEDS Trade Health $0.77

Bed Bath & Beyond (BBBY)

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Based in New Jersey, Bed Bath & Beyond (NASDAQ:BBBY) is an American chain of domestic merchandise retail stores. Correction, it’s a deeply embattled chain of domestic merchandise retail stores. Presently, the company features a market capitalization of almost $325 million. But it used to be so much more. On a year-to-date basis, BBBY stock tumbled nearly 74%.

Plenty has been said about Bed Bath & Beyond, such as dubious abandonment by activist investors. However, regarding this list of meme stocks to avoid, I’m going to mostly focus on the hard data. Per Gurufocus.com, the investment resource warns its subscribers that the enterprise represents a possible value trap.

Primarily, the company’s three-year revenue growth rate (on a per-share basis) sits 4% below parity. Likewise, its book growth rate during the same period is in negative territory to the tune of 52%. Then, you have the operating and net margins that are down double digits (or very close to it). With consumer sentiment near historic lows, it’s time to call it a day for BBBY stock.

Meme Stocks to Avoid: Revlon (REVRQ)

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Headquartered in New York City, Revlon (OTCMKTS:REVRQ) is an American multinational company dealing in cosmetics, skincare, fragrance, and personal care. Once a proud powerhouse in the cosmetics sector, Revlon suffered an ignominious decline. Recently, the company got the boot from the New York Stock Exchange. As you can see from the funky ticker symbol, its shares now trade over the counter.

Again, I’m not here to bash these enterprises and tell you to short entities like REVRQ. Far from it – I respect the power of coordinated trading on social media so I’m staying out of that mess. However, investors must also recognize reality. REVRQ dropped over 90% of equity value. When companies lose 90% of their value, it’s usually not for a good reason.

As you might suspect, Gurufocus.com warns that Revlon may represent a value trap. As with Bed Bath & Beyond, Revlon’s three-year revenue growth rate sits in negative territory (7.4% below parity). Also, its net margin is nearly 19% in the red, ranking worse than 87% of the competition. It’s just simply one of the meme stocks to avoid.

Meme Stocks to Avoid: Peloton (PTON)

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Founded in 2012, Peloton (NASDAQ:PTON) calls New York home. An exercise equipment and media company, the quirky company generated comical publicity when it launched a commercial featuring a man gifting his wife an exercise bike. Well, no one’s laughing now. Presently, Peloton carries a market cap of $2.97 billion but it used to be much higher.

Since the start of this year, PTON gave up nearly 73% of its equity value. To be fair, PTON did gain some near-term momentum, moving up 5.4% in the trailing month. However, that’s just nowhere near enough. At its peak, PTON traded hands well into triple-digit territory. As I write this, shares slipped down to single digits. Still, I’d be careful about calling this a discount.

Earlier, pandemic-related factors could have bolstered PTON as one of the meme stocks to speculate on. However, Gurufocus.com warns that Peloton now represents a possible value trap. Unfortunately, its net margin ranks worse than 87% of the underlying industry. As well, the company’s Altman Z-Score of 1.65 points below parity reflects a highly distressed business facing bankruptcy risk.

Meme Stocks to Avoid: DraftKings (DKNG)

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Headquartered in Boston, Massachusetts, DraftKings (NASDAQ:DKNG) is a daily fantasy sports contest and sports betting company. While the company generated much popularity shortly following its public market debut, DKNG began fading badly in late 2021. Currently, DraftKings features a market cap of $5.18 billion. DKNG stock fell nearly 55% YTD.

Not helping matters is the company’s recent quarterly earnings report. While DraftKing’s sales tally of $502 million beat estimates, it fell conspicuously short regarding monthly unique paying customers. Therefore, over the trailing five days, DKNG tanked a very worrying 25% of market value. But even without that tidbit about paying customers, DraftKings appeared to court massive trouble.

One of the main challenges for the organization is that its quality of business is down in the dumps. Per Gurufocus.com, DraftKings’ return on equity (ROE) is nearly 88% below parity. This ranks worse than over 94% of the competition. With so many other problems to boot, DKNG now ranks among the meme stocks to avoid.

Spirit AeroSystems (SPR)

Source: Shutterstock

Headquartered in Wichita, Kansas, Spirit AeroSystems (NYSE:SPR) is the world’s largest first-tier aerostructures manufacturer. At the moment, Spirit features a market cap of $2.9 billion. Although a significant infrastructural player, Spirit has not been able to translate this into market strength. Since the Jan. opener, SPR dropped 39% of its equity value.

To be completely transparent, SPR is enjoying some near-term momentum. Over the trailing five days, the stock gained almost 16% while in the trailing month, it’s up about 10%. Given its importance in building critical components of popular jetliners, it’s possible that SPR could move higher eventually. Certainly, I wouldn’t classify it as one of the meme stocks to short.

However, as one of the meme stocks to avoid, it’s difficult to overlook the flaws. According to Gurufocus.com, SPR rates as a possible value trap. Worryingly, its ROE wallows deeply in negative territory, ranking worse than over 94% of the competition. Also, both its revenue (per-share basis) and profitability metrics are below breakeven. Finally, its lowly Altman Z-Score suggests a business in distress.

Upstart (UPST)

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Founded in April 2012, Upstart (NASDAQ:UPST) operates out of San Mateo, California. Representing an artificial intelligence-based lending platform, Upstart partners with banks and credit unions to provide consumer loans using non-traditional variables, such as education and employment, to predict creditworthiness. Unfortunately, this compelling concept hasn’t translated to market success. UPST fell almost 87% YTD.

Based on its recent quarterly disclosure and a pensive forecast, circumstances may not improve for a while. Per MarketWatch.com, UPST fell on Tuesday after delivering a cautious forecast “in the wake of continued macroeconomic pressures.” In addition, the “company’s results for the most recent quarter also disappointed,” with Upstart contending “with issues around loan funding as well as weakening consumer demands for its loans.”

What also makes UPST one of the meme stocks to avoid centers on its value proposition or lack thereof. Presently, the enterprise features a price-to-tangible-book ratio of 2.33 times, ranking worse than 81.5% of the competition.

Trxade Health (MEDS)

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Founded in 2005, Trxade Health (NASDAQ:MEDS) is based in Florida. Per its website, Trxade is a health services IT company focused on digitalizing the retail pharmacy experience by optimizing drug procurement, the prescription journey, and patient engagement in the U.S. Although a compelling narrative, Trxade has failed to impress Wall Street this year. Since the January opener, MEDS stock gave up 70% of its equity value.

As with the other meme stocks to avoid, Gurufocus.com warns its users that Trxade is a possible value trap. However, the investment resource goes deeper, providing a lengthy list of concerns over MEDS stock. For instance, it notes that Trxade suffers from poor financial strength, often caused by excessive debt. In addition, its Altman Z-Score is 3.53 points below parity, reflecting a distressed enterprise that may face bankruptcy in the next two years.

If that wasn’t enough, the platform also noted that Trxade’s “Piotroski F-Score of 3 is low, which usually implies poor business operation.” As well, its Beneish M-Score “implies that the company might have manipulated its financial results.”

Frankly, there are other meme stocks that enjoy a more credible path to upside. Therefore, investors should probably avoid Trxade Health.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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