Social media gave rise to so-called meme stocks and although the investment case was always practically non-existent, meme stocks to sell are those that have failed to make something out of their newfound celebrity. The argument for holding onto a meme stock, apart from participating in a social media trend, is that the company suddenly has enough interest to raise new capital and do something more with the business.
The boom in meme stocks allowed many of these companies to transform their balance sheets by issuing new shares, debt and drawing in big-name investors. This represented a massive opportunity for the firms to turn things around. Given that the bulk of these companies were more-or-less washed-up businesses that had failed to change with the times, the influx of new interest offered somewhat of a lifeline to turn things around.
However, with very little evidence that any sort of change, of course, is ahead, many meme stocks could find themselves part of July stock sell-offs. While a spectacular boom thanks to Reddit chatter can sometimes turn into a longer rally, ultimately the underlying business needs to be viable in order to be worth keeping hold of. That means, among other things, profitability. Or at the very least a path to profitability. For many meme stocks that means tweaking their offering to appeal to the public, a task that’s become all the more daunting given the current economic conditions.
GameStop (GME)
GameStop (NYSE:GME) was the original meme stock, drumming up a frenzy during the pandemic. It’s been over two years since GME stock became all the rage among meme stock investors, and in that time the company managed to eke out some financial benefit. But management has failed to turn the momentum into action.
GameStop has tried to turn itself into a gaming business that can thrive in the digital world with efforts to shift the business toward Web 3.0 gaming and NFTs. But unfortunately, the lion’s share of GameStop’s revenue still comes from tangible items like hardware, games, and accessories. This is a dying market akin to the days of physical video rental, and that puts GameStop on the same plane as BlockBuster.
The business is now in survival mode with cost-cutting the primary lever that management is pulling. There’s only so much fat to trim, though, and the group will likely find itself cutting into the potential growth areas of the business. With that in mind, it seems to be only a matter of time before GameStop goes the way of the dodo.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) saw a boom of investor interest when its meat-alternative burgers came onto the scene, but the group’s one of the meme stocks to sell because the company’s failing to live up to the hype. A more health-conscious public embraced the idea of meat-free sausages and burgers, but doubts about the health of these products have started to creep in. Plus, the cost of these products isn’t on par with their animal counterparts, leaving the environmental benefit as the only real selling point for many consumers.
Beyond Meat has the potential to turn things around, but the slice of the market is getting increasingly crowded. With new lab-grown meat gaining traction, we could see heavily processed plant burgers ousted.
Plus, Beyond Meat’s business model isn’t exactly robust. Operating profits have been in the red for years despite steady revenue increases. Add to that growing investor discontent and several lawsuits alleging the company hasn’t been forthcoming about its prospects, and you have a very difficult path ahead. Ultimately the group is treading on thin ice, making it one of the meme stocks to sell now before the cracks form.
Peloton (PTON)
Another pandemic darling that’s become one of the meme stocks to sell is Peloton (NASDAQ:PTON). The company’s extravagant exercise bikes and treadmills were seen as the next big wave in the fitness world. But now that gyms are reopening their high-price tags and running costs are making them a lot less appealing to exercise enthusiasts.
Peloton shares nosedived as people returned to gyms, and in response, management has tried to rebrand. Rather than being known as a hardware equipment company, Peloton is repositioning itself as an exercise streaming service. The shift brought some investors back to the table, with shares rising substantially.
But the question is whether or not this rebrand really changes the value proposition for Peloton stock. Ultimately the group’s offering does little to stand out from heavy hitters like Apple, which offers its own fitness streaming platform. Plus, Peloton’s membership feels clunky, with several different tiers and pricing structures. Ultimately the group’s trying to hang on to its premium pricing but also expand its addressable market. Unfortunately with gyms now open, competing on price is likely to become the norm and could be problematic from a profitability point of view.
On the date of publication, Marie Brodbeck did not hold (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.
