Keep Away from These 3 Overvalued Reddit Stocks in November

NYSE: AMC | AMC Entertainment Holdings, Inc.  News, Ratings, and Charts

AMC – Subreddit WallStreetBets (WSB) became popular after the GameStop (GME) short squeeze earlier this year. However, many Reddit stocks have failed to maintain the short-squeeze-driven price levels they achieved due to their weak fundamentals. Reddit stocks AMC Entertainment (AMC), Digital World Acquisition (DWAC), and Progenity (PROG) to us look significantly overvalued at their current price levels and could witness a downtrend. So, these stocks are best avoided now. Let’s discuss.

Earlier this year, the Reddit community WallStreetBets (WSB) came to the fore due to the GameStop Corporation’s (GME) short squeeze. While several other stocks experienced skyrocketing price rallies driven by excessive retail trading, influenced by discussions on WSB, many of these stocks, because of their weak fundamentals, could not maintain the price levels they achieved.

The popularity of the Reddit forums among meme investors is waning. According to alternative data provider Quiver Quantitative, the average daily comments on WSB in October have fallen by half compared to November 2020.

Hence, we think it could be wise to avoid overvalued Reddit stocks AMC Entertainment Holdings, Inc. (AMC), Digital World Acquisition Corp. (DWAC), and Progenity, Inc. (PROG) in November.

AMC Entertainment Holdings, Inc. (AMC)

AMC and its subsidiaries operate in the theatrical exhibition business by owning, operating, and holding interests in theatres. The Leawood, Kans., company offers varied services, including theatrical exhibitions, movie screenings, online ticket booking, etc.

On October 26, a premier securities litigation law firm, Labaton Sucharow LLP, announced that it is pursuing claims, on behalf of shareholders, regarding Robinhood Markets, Inc. (HOOD) restrictions on traders from opening new positions and unexpectedly closing positions of AMC, alongside other stocks. This has led AMC’s stock price to plummet.

On September 29, Bragar Eagel & Squire, P.C., a shareholder rights law firm, declared that it is investigating certain officers and directors of AMC in a class action complaint, which alleges that the company’s Registration Statement and Prospectus included materially inaccurate statements about its acquired business’ revenue growth.

In terms of forward EV/Sales, AMC is currently trading at 11.03x, which is 356.3% higher than the 2.42x industry average. Its 7.30 forward Price/Sales multiple is 343.9% higher than the 1.65 industry average.

For its second fiscal quarter, ended June 30, AMC’s operating costs and expenses increased 51.1% year-over-year to $741.30 million. Its net loss and loss per share came in at $344 million and $0.71, respectively, while its net cash used in operating activities rose 0.8% from the same period last year to $233.80 million.

Although the $2.40 billion consensus revenue estimate for the current year (fiscal 2021) indicates a 93.3% year-over-year increase, analysts expect EPS to come in at a negative $2.81 in the current year. Furthermore, AMC has missed consensus EPS estimates in three out of the trailing four quarters. The stock has declined 4.5% in price over the past three months and 7.1% over the past month to close Friday’s trading session at $35.37.

AMC’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct 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, it is ranked 7. The industry is rated F.

Click here to see the additional POWR Ratings for AMC (Growth and Momentum).

Digital World Acquisition Corp. (DWAC)

DWAC is a Miami, Fla.-based Special Purpose Acquisition Company (SPAC) whose strategy is to effect mergers, asset acquisitions and reorganizations, and other business combinations with fintech, SaaS, or financial companies.

The company began trading after a traditional IPO  in September. DWAC priced its $250 million IPO at $10.00 per unit.

On October 20, Trump Media & Technology Group (TMTG) announced a definitive merger agreement with DWAC. The transaction values TMTG at an $875 million initial enterprise value, and DWAC will initially fund its growth plans. The deal is an effort to launch TMTG’s social network called ‘TRUTH Social.’

It has been reported that DWAC may have violated securities foundations because  the company was in talks with TMTG about a merger since before it went public, which SPACs are not allowed  to do, since it risks them becoming ‘backdoor vehicles’ for private companies to go public. As of September 8, 2021, the company’s total assets stood at $294.98 million.

DWAC’s stock has declined 19.4% in price over the past five days to close Friday’s trading session at $67.75. It has declined 6% intra-day.

DWAC has a D Value grade. It is ranked #64 out of the 133 stocks in the D-rated Financial Services (Enterprises) industry. To see the additional POWR Ratings for Growth, Momentum, Stability, Sentiment, and Quality for DWAC, click here.

Progenity, Inc. (PROG)

PROG operates as a biotechnology company that develops and commercializes molecular testing products in the United States. Its offerings include non-invasive prenatal screening tests, anatomic and molecular pathology tests, and therapeutic solutions for gastro-intestinal-related disorders. PROG is based in San Diego, Calif.

On October 26, PROG announced that it has entered a privately negotiated agreement with holders of its Convertible Senior Notes due 2025 to exchange approximately 8,513,850 shares of its common stock for $20.18 million principal amount of the notes. However, the company will not receive any cash proceeds from the transaction because the amount is expected to be used for debt reduction.

In June, Kahn Swick & Foti, LLC reported that the law firm is continuing investigations on PROG after it was being sued in a class-action lawsuit for violating federal securities laws regarding non-disclosure of material information.

PROG’s 10.38 forward EV/Sales multiple is 54.4% higher than the 6.72 industry average. In terms of forward Price/Sales, the stock is currently trading at 8.76x, which is 10.5% higher than the 7.92x industry average.

PROG’s total operating expenses increased 36.4% year-over-year to $36.12 million in its second fiscal quarter, ended June 30. Its net loss attributable to common stockholders rose 48% from the prior-year quarter to $78.53 million, while net loss per share attributable to common stockholders stood at $1.23 for the period.

The Street expects its PROG’s EPS to come in at a negative $0.24 in the current quarter (ending December 2021). The Street’s $3.13 million revenue estimate for the current quarter reflects a 78.1% year-over-year decline. In addition, PROG has missed consensus EPS estimates in three out of the trailing four quarters. The stock has declined 27.9% in price over the past year and 32.2% year-to-date to close Friday’s trading session at $3.60.

It’s no surprise that PROG has an overall D rating, which translates to Sell in our POWR Rating system. PROG has an F grade for Stability, and a D grade for Momentum, Sentiment, and Quality. It is ranked #360 of 491 stocks in the Biotech industry. The industry is rated F.

In addition to the POWR Rating grades we’ve stated above, one can see PROG ratings for Growth and Value here.

Click here to checkout our Healthcare Sector Report for 2021

AMC shares were trading at $36.88 per share on Monday morning, up $1.51 (+4.27%). Year-to-date, AMC has gained 1,639.62%, versus a 24.01% 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. More...

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