Digital marketing company Vinco Ventures, Inc. (BBIG) focuses on sourcing, design, sales, fulfillment, and shipping services in North America, the Asia Pacific, and Europe. Shares of the Bethlehem, Pa.-based digital media merger and acquisition company have rallied 187% in price over the past five days, driven by the meme stock craze.

As investor chatrooms like StockTwits and Reddit’s r/wallstreetbets light up with BBIG’s mention, along with other new meme names, the NFT stock has more than doubled in price from last week. Also, the strategic launch of its E-NFT platform and its planned Lomotif acquisition have helped the stock soar 149.5% over the past three months.

However, the company reported disappointing second-quarter earnings results. In addition, its expanding operating expenses and losses and uncertainty surrounding the NFT space could cause its shares to retreat in the near term.

Here is what we think could influence BBIG’s performance in the near term:

Acquisition of Lomotif

Through the joint venture entity ZVV Media, BBIG acquired an 80% interest in Lomotif Private Limited, the owner of short-form video platform Lomotif. The acquisition of Lomotif should strengthen the company’s position in the digital media and entertainment industry and enhance its offerings. However, since financial details have not yet been revealed, the deal’s uncertainty could raise investors’ anxiety. In addition, although robust user growth of Lomotif could bode well for the stock, the hefty costs associated with the acquisition could negatively impact its business.

Challenges in the NFT Space

With many celebrities jumping into the non-fungible tokens (NFTs) bandwagon, the budding market has witnessed exponential gain in the first half of 2021. While the sales volume of digital collectibles continues to soar due to rising cryptocurrency prices as speculators pile in, the NFT space suffers from massive volatility. Michael Every, head of financial markets research in Rabobank, believes the pandemic’s forcing of  people to stay at home and spend more time online has fueled the NFT craze, it is a bubble that will  “absolutely” pop. 

Although the niche industry’s sudden popularity has led several companies to focus on NFTs, the volatility in digital asset prices  and a deflating NFT boom could spell additional risks and uncertainties. Although BBIG’s investment in the E-NFT platform has captured investors’ interest, higher volatility and fading NFT enthusiasm could be concerning.

Lackluster Financials

BBIG’s total operating loss for the second quarter, ended June 30, 2021, stood at $4.97 million. This compares to $1.21 million for the second quarter of 2020. Also, its net revenue came in at $2.69 million, representing a 48% decrease year-over-year, mainly due to the decrease in personal protective equipment (PPE) sales in the Edison Nation Medical division. Furthermore,  BBIG’s gross profit declined 17% from its  year-ago value to $970,622. And  its net loss totaled $183.67 million for the quarter, compared to $1.62 million in the prior-year period. The company’s loss per share rose significantly year-over-year to $5.13.

Its 32.4% trailing-12-month gross profit margin is 8.9% lower than the 35.5% industry average. Also, its EBITDA , ROA, and EBIT margins came in at negative 129.3%, 206.9%, and 142.4%, respectively. And the company’s trailing-12-month cash from operations stood at a negative $9.74 million. Its 0.2% asset turnover ratio is 82.1% lower than the 1.1% industry average.

Stretched Valuation

In terms of trailing-12-month EV/Sales, BBIG is currently trading at 18.07x, which is 994.1% higher than the 1.65x industry average. In addition, its 7.61x trailing-12-month Price/Sales ratio  is 462.8% higher than the1.35x industry average.

Unfavorable POWR Ratings

BBIG has an overall F rating, which translates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. BBIG has a D grade for Quality. The stock’s negative profit margin is reflected in this grade.

Also, it has an F grade for Growth, which is consistent with the stock’s bleak financials and growth prospects.

In terms of Value Grade, BBIG has an F. This is justified by the stock’s higher-than-industry valuation multiples.

Beyond the grades we’ve highlighted, one can check out additional BBIG ratings for Sentiment, Stability, and Momentum here.

Of the 72 stocks in the D-rated Consumer Goods industry, BBIG is ranked #71.

Bottom Line

While BBIG’s stock has been witnessing wild rallies lately, with retail investors pumping up their bets on social media platforms, its weak fundamentals and poor financial health could cause its shares to retreat in the near term. Meanwhile, the volatility in the nascent NFT space because  the industry is still in its infancy could be a risk to the stock. So, we think it’s wise to avoid the stock now.

How Does Vinco Ventures (BBIG) Stack Up Against its Peers?

While BBIG has an overall POWR Rating of F, one  might want to consider taking a look at its industry peers, Société BIC SA (BICEY) and Ennis Inc. (EBF), which have an A (Strong Buy) rating.

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