Meme stocks gained prominence last year due to massive short squeeze rallies triggered by retail investors. Retail investors grouped on social media platforms to bet against hedge funds holding short positions in fundamentally weak companies.
However, the index of 37 meme stocks compiled by Bloomberg hit a record low this month, down 63% from its peak in January 2021. Michael Burry, the hedge fund manager of "The Big Short" fame, warned retail investors that are piling into meme stocks that they were swaying toward the "mother of all crashes." Also, Melvin Capital, once one of Wall Street's most successful hedge funds, which then lost billions in the meme stock saga, will shut down after it was hit again by this year's market slump.
Given this backdrop, we think it could be wise to avoid meme stocks DraftKings Inc. (DKNG), Palantir Technologies Inc. (PLTR), AMC Entertainment Holdings, Inc. (AMC), SoFi Technologies, Inc. (SOFI), and Roblox Corporation (RBLX), which are each down 50% or more year-to-date.
DraftKings Inc. (DKNG)
Headquartered in Boston, Massachusetts, DKNG functions as a digital sports entertainment and gaming company in the United States and internationally. It has two operational segments, Business-to-Consumer and Business-to-Business. The company offers users daily fantasy sports, sports betting, iGaming opportunities, media, and other online consumer products.
During the first quarter, ending March 31, 2022, DKNG's net loss increased 35% year-over-year to $467.69 million, while its adjusted EBITDA grew 107.9% from its year-ago value to $289.51. The company's net interest income came in at a negative $148.00 million.
DKNG's consensus EPS is expected to remain negative in the second quarter ending June 30, 2022. The stock has declined 49.5% in price year-to-date and 73.4% over the past nine months.
DKNG's POWR Ratings are consistent with this bleak outlook. The company has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
DKNG has an F grade for Stability and a D grade for Quality and Sentiment. Within the F-rated Entertainment - Casinos/Gambling Industry, it is ranked #29 of 29 stocks. To see additional POWR Ratings for Growth, Value, and Momentum for DKNG, click here.
Palantir Technologies Inc. (PLTR)
Headquartered in Denver, Colo., PLTR builds and deploys software platforms for the intelligence community in the United States to help in counterterrorism investigations and operations. The company provides Palantir Gotham, a software platform that allows users to identify patterns hidden deep within datasets.
During the first quarter, ending March 31, 2022, PLTR's total operating expenses increased 2.7% year-over-year to $391.39 million. Its loss from operations amounted to $39.44 million, while its net loss came in at $101.38 million. The company's EPS stood at $0.05.
PLTR's consensus EPS estimate is expected to decline 25.6% year-over-year to $0.03 for the second quarter, ending June 30, 2022. The stock has declined 56.1% in price year-to-date and 68.3% over the past nine months.
PLTR's poor prospects are also apparent in its POWR Ratings. It also has an F grade for Sentiment and a D for Value and Stability. PLTR is ranked #16 out of 25 stocks in the F-rated Software - SAAS industry.
Click here to see the additional POWR Ratings for PLTR (Growth, Quality, and Momentum).
Click here to check out our Software Industry Report for 2022
AMC Entertainment Holdings, Inc. (AMC)
AMC, along with its subsidiaries, is in the theatrical exhibition business. The company owns, operates, or has interests in theaters in the United States and Europe. As of March 1, 2022, it operated approximately 950 theaters and 10,600 screens. The company is headquartered in Leawood, Kansas.
During the first quarter, ending March 31, 2022, AMC's operating loss amounted to $166.90 million. Its net loss came in at $337.40 million, while its adjusted EBITDA was negative $61.70 million over the period. The company's adjusted loss per share amounted to $0.52.
AMC's consensus EPS is expected to remain negative in the second quarter ending June 2022. The stock has plunged 53.1% year-to-date and 68.4% over the past six months.
AMC's weak fundamentals are reflected in its POWR ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The stock has an F grade for Stability and Sentiment and a D grade for Value. In the F-rated Entertainment - Movies/Studios industry, it is ranked #8 of 8 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see AMC's Momentum, Growth, and Quality rating here.
SoFi Technologies, Inc. (SOFI)
Headquartered in San Francisco, SOFI offers digital financial services. It has three operational segments: Lending, Technology Platform, and Financial Services. The company's lending and financial services and products permit its members to borrow, save, spend, invest, and protect their money.
For the first quarter, ending March 31, 2022, SOFI's net loss amounted to $110.36 million, while its loss per share came in at $0.14. Its total interest expenses stood at $23.48 million over the period.
SOFI's consensus EPS is expected to remain negative in the second quarter, ending June 2022. The company's shares have declined 54.3% in price year-to-date and 64.9% over the past six months.
SOFI's poor prospects are also apparent in its POWR Ratings. The stock has an overall F grade, which equates to a Strong Sell in our proprietary rating system. It also has an F grade for Stability and a D for Sentiment and Value. SOFI is ranked #101 of 106 stocks in the D-rated Financial Services (Enterprise) industry.
Click here to see the additional POWR Ratings for SOFI (Growth, Quality, and Momentum).
Roblox Corporation (RBLX)
Headquartered in San Mateo, Calif., RBLX develops and operates an online entertainment platform. The company delivers Roblox Studio, a free toolset that permits developers and creators to build, publish, and operate 3D experiences and other content; Roblox Client, an application that allows users to explore 3D digital world; and Roblox Education for learning experiences.
During the first quarter, ending March 31, 2022, RBLX's loss from operations grew 12.3% year-over-year to $151.61 million. Also, the company's total cost and expenses increased 32% from its prior-year quarter to $688.75 million.
RBLX's consensus EPS is expected to remain negative in the second quarter ending June 2022. The revenue estimate of $657.22 million represents a decline of 1.2% in the second quarter ending June 30, 2022.
The company's shares have plunged 68.5% in price year-to-date and 74.2% over the past six months.
RBLX's POWR ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to Sell in our POWR Ratings system.
RBLX has an F grade for Stability and Sentiment. Within the D-rated Entertainment - Toys & Video Games industry, it is ranked #19 of 23 stocks. To see additional POWR Ratings for Value, Growth, Quality, and Momentum for RBLX, click here.
DKNG shares were trading at $13.94 per share on Thursday morning, up $0.08 (+0.58%). Year-to-date, DKNG has declined -49.25%, versus a -17.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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