Beware of These 3 Overpriced Meme Stocks (Not Named AMC or GME)

NASDAQ: BB | BlackBerry Limited News, Ratings, and Charts

BB – A subreddit WallStreetBets-triggered short squeeze helped fuel a massive rally in GameStop (GME) and AMC Entertainment (AMC) earlier this year. And with the return of the meme stock frenzy, AMC has climbed to fresh highs this month. But this time BlackBerry (BB), Sundial Growers (SNDL), and Workhorse Group (WKHS) are hogging the spotlight and their share prices are skyrocketing. But because these three stocks are trading at lofty valuations in the absence of sound financials, we think they are best avoided now.

Retail investors’ rekindled interest in meme stocks continues to fuel AMC Entertainment Holdings, Inc’s. (AMC) wild ride. The stock hit a $72.62 fresh high earlier this month and has rallied roughly 420% over the past month. Its blistering meme stock rally began with January’s more than 1,600% gain in GameStop Corporation (GME). In fact, the chief strategist at Interactive Brokers characterized AMC’s massive gains, which resemble those of GME, as “meme stock 2.0.”

According to HypeEquity data, retail investors who are active on subreddit r/wallstreetbets have been boosting the hype this week with words like “short” and “squeeze.” However, getting caught up in such frenzies could potentially lead to significant losses, given the extreme volatility that meme stocks experience.

Amid the renewed interest in buying meme stocks, BlackBerry Limited (BB), Sundial Growers Inc. (SNDL), and Workhorse Group Inc. (WKHS) have hogged the spotlight. Although the gains in these stocks are irresistible, we believe these companies do not possess sufficient fundamental strength and cash positions to sustain their sky-high valuations. So, we think these meme stocks are best avoided now.

BlackBerry Limited (BB)

Headquartered in Waterloo, Canada, BB provides intelligent security software and endpoint security management services to enterprises and governments internationally. The company provides the BlackBerry Spark software platform, as well as IoT solutions, such as BlackBerry Certicom, BlackBerry Radar, BlackBerry Jarvis, BlackBerry AtHoc, among other applications. BB owned approximately 38,000 patents and applications worldwide as of February 2021.

In April, Pomerantz LLP started an investigation concerning BB’s possible unlawful business practices or securities fraud, on behalf of the company’s shareholders. Also, Labaton Sucharow LLP is pursuing FINRA arbitration for Robinhood trading restrictions, on behalf of traders who suffered losses in BB and other stocks.

BB’s net revenue declined 25.5% year-over-year to $210 million in the fourth quarter ended February 28, 2021. Its gross margin declined 28.3% from its  year-ago value to $152 million, while its operating expenses increased 83.8% year-over-year to $465 million during the quarter. The company incurred a $315 million net loss , compared to a $41 million net loss in the fourth quarter of 2020. Also, its loss per share came in at $0.56 and its operating loss came in at $313 million over this period.

BB’s revenue is estimated to decline 20% year-over-year to $171.25 million in the quarter ended May 2021, and 10.3% year-over-year to $824.43 million for  2022. Its EPS is expected to decline 145.5% in the next quarter and 127.8% in 2022. The stock has gained 86.3% over the past month but is currently trading 47.3% below its 52-week high of $28.77.

Also, BB has a stretched valuation. Its forward EV/EBITDA currently stands at 196.22x, which is 1,060.5% higher than the 16.91x industry average. In fact, its 109.04x trailing-12-month Price/Cash Flow  is 389.6% higher than the 22.27x industry average.

BB’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which translates to Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

BB has an F grade for Sentiment, and a D for Stability and Quality. Of the 56-stocks in the B-rated Technology – Communication/Networking industry, it is ranked #64.

In addition to the POWR Ratings grades we’ve just highlighted, one can see the BB ratings for Value, Momentum, and Growth.

Sundial Growers Inc. (SNDL)

Canada-based SNDL produces and sells cannabis products for the adult-use market. The company sells inhalable products like flower, pre-rolls, and vapes under the Top Leaf, Sundial Cannabis, Palmetto, and Grasslands brands.

Last month, SNDL agreed  with Inner Spirit Holdings Ltd. to acquire all the shares of Inner Spirit for approximately $131 million. While the combined company is expected to cater to a larger consumer base and provide high-quality products, the acquisition could  drain SNDL’s already weak cash reserves.

SNDL’s net revenue declined 29.4% year-over-year to CAD$9.89 million ($8.16 million) in the first quarter, ended March 31. Its adjusted gross margin came in at a negative CAD$3.45 million ($2.85 million), while net loss was  CAD$134.45 million ($110.98 million).

Analysts expect SNDL’s revenue to decline 34.3% year-over-year to $10.06 million in the current quarter, ending June 2021, and 3.8% year-over-year to $48.6 million in the current year. Also, the stock failed to beat  consensus EPS estimates in any of the trailing four quarters. SNDL’s stock has gained 51.5% over the past month but declined 16.6% over the past three months.

The stock appears to be extremely overvalued currently. In terms of its forward EV/EBITDA, SNDL is currently trading at 1,137.74x, which is significantly higher than the 16.09x industry average. Furthermore, its 47.92 forward Price/Sales ratio is 520.4% higher than the 7.72x industry average.

SNDL’s weak prospects are apparent in its POWR Ratings also. It has an F grade for Stability, Value, and Quality. In the F-rated Medical – Pharmaceuticals industry, the stock is ranked #227 of 230 stocks.

To see additional POWR Ratings for Growth, Sentiment and Momentum for SNDL, click here.

Click here to check out our new  Cannabis Industry Report for 2021

Workhorse Group Inc. (WKHS)

Formerly known as AMP Holding Inc., WKHS is a  technology company that manufactures and sells battery-electric vehicles and aircraft in the United States. The company also builds electric medium-duty delivery trucks under the Workhorse brand and develops cloud-based and real-time telematics performance monitoring systems.

In April, several law firms, including Kessler Topaz Meltzer & Check, LLP, the Schall Law Firm, and Bronstein, Gewirtz & Grossman, LLC, filed a securities fraud class action lawsuit against WKHS on behalf of its shareholders. This could negatively impact the stock price in the coming months.

In the first quarter, ended March 31, 2021, WKHS’ gross loss was $5.7 million, compared to $1.66 million in the first quarter of 2020. The company’s total operating expenses increased 43.9% from its year-ago value to $10.75 million. It generated a $153.06 million loss from operations and $120.51 million net loss over this period.

The consensus EPS estimate for the current year is negative $1.69, representing a 341.4% year-over-year decline. WKHS has an unimpressive earnings surprise history too; it failed to beat the consensus EPS estimates in three of the trailing four quarters. The stock has gained 61.6% over the past month but has declined 21.2% year-to-date. Also, it is overvalued considering its financials. WKHS’ forward EV/Sales is 20.60x versus the 1.61x  industry average.

WKHS’ weak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. WKHS has an F for Stability, Quality, Sentiment and Value as well. In the C-rated Auto & Vehicle Manufacturers industry, the stock is ranked #55 of 57 stocks.

In total, we rate WKHS on eight different components. Beyond what we stated above we have also given it grades for Growth and Momentum. Get all the WKHS ratings here.

Click here to check out our Automotive Industry Report for 2021

BB shares fell $0.60 (-3.96%) in premarket trading Thursday. Year-to-date, BB has gained 119.00%, versus a 13.22% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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