Meme stocks emerged as a pandemic-induced diversion, fueled by the hype surrounding them on social media forums. They gained immense popularity following the GameStop (GME) short squeeze triggered by retail traders earlier this year, and the craze continues with social media platforms influencing retail investors’ investment decisions. However, while the massive price gains of meme stocks look tempting, the performance for most of them may not be sustainable given their weak fundamentals.
Last month, the U.S. Securities and Exchange Commission (SEC) charged two individuals for a fraudulent trading scheme involving meme stocks to take advantage of a surge in retail trading driven by social media. This has raised investor anxiety surrounding meme stocks.
So, it could be wise to avoid meme stocks with weak growth prospects and bleak financials. To that end, we believe Beyond Meat, Inc. (BYND), SmileDirectClub, Inc. (SDC), Rocket Lab USA, Inc. (RKLB), and Ocugen, Inc. (OCGN) are best avoided now.
Beyond Meat, Inc. (BYND)
BYND is a food company that offers plant-based meat and products. The company operates under the Beyond Meat; Beyond Burger; Beyond Sausage; the Caped Steer Logo; The Cookout Classic; The Future of Protein; and various other segments. Its products are available at nearly 122,000 retail and foodservice outlets across grocery, club, natural retailer channels, and other food-away-from-home channels, including restaurants.
In August, BYND announced that Los Angeles superior court favors the company in the legal case with a former co-manufacturer, Don Lee Farms. Don Lee Farms claimed that BYND had misappropriated Don Lee Farm’s trade secrets to manufacture many products. Though the court has rejected the claim, this case could negatively impact BYND’s customers’ trust.
BYND’s total operating expenses increased 57.7% year-over-year to $65.95 million in the second quarter that ended July 3, 2021. The company’s loss from operations grew 127.8% from the year-ago value to $18.6 million. Its net loss rose 92.6% from the year-ago value to $19.65 million. Also, the company’s loss per share increased 93.8% year-over-year to $0.31.
BYND has failed to beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to decrease 88.3% in the current year. Moreover, its stock has lost 30.4% over the past three months and 23.4% over the past six months.
BYND’s POWR Ratings are consistent with this bleak outlook. The stock has an overall grade of F, which equates to a Strong Sell rating in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has an F grade for Value, Sentiment, and Quality. We’ve also graded BYND for Growth, Momentum, and Stability. Click here to access all of BYND’s ratings. BYND is ranked #83 out of the 84 stocks in the C-rated Food Makers industry.
SmileDirectClub, Inc. (SDC)
SDC is a medical technology company that offers accessible oral care treatments through a teledentistry platform, SmileCheck. The company also provides clear aligner therapy treatment through its platform. It has a network of approximately 240 orthodontists and general dentists across the United States, Puerto Rico, Canada, Australia, and the United Kingdom.
During the second quarter that ended June 30, 2021, SDC’s total revenues increased 62.7% year-over-year to $174.18 million. However, the company’s loss from operations came in at $53.2 million for the quarter. Also, its net loss amounted to $55.26 million, and its loss per share came in at $0.14 during the same period.
SDC’s EPS is estimated to decline 18.2% in the current quarter and 33.3% in the next quarter. Its stock decreased 34.1% over the past six months and 39.5% over the past nine months. But it gained 19.3% over the past month.
SDC’s poor prospects are also apparent in its POWR Ratings. The stock has an overall grade of D rating, which equates to a Sell rating in our proprietary ratings system. Also, the stock has an F grade for Sentiment, and a D grade for Stability and Quality.
In addition to the POWR Rating grades I’ve just highlighted, one can see SDC’s grades for Growth, Value, and Momentum here. SDC is ranked #136 out of 176 stocks in the C-rated Medical – Devices & Equipment industry.
Rocket Lab USA, Inc. (RKLB)
RKLB is an aerospace company that delivers reliable launch services, spacecraft, satellite components, and on-orbit management. The company’s segments include Launch Services; and Space Systems. It also researches, designs, and fabricates rocket systems, incorporating propulsion, vehicle launch, and electronic control systems.
For six months that ended June 30, 202, the company’s total operating expenses increased 68.1% year-over-year to $29.3 million. The company’s operating loss grew 9.1% from the year-ago value to $25.43 million. Its net loss rose 38.8% from the prior-year quarter to $32.55 million. Also, the company’s comprehensive loss increased 32.1% year-over-year to $31.47 million.
The company’s EPS is expected to remain negative for the current year and next year. RKLB’s stock price has declined 4.5% over the past five days. However, the stock has surged 3.6% over the past month.
It’s no surprise that RKLB has an overall grade of F rating, which equates to a Strong Sell rating in our POWR Rating system. Also, the stock has an F grade for Value and Sentiment, and a D for Growth.
Ocugen, Inc. (OCGN)
OCGN is a biopharmaceutical company that develops gene therapies to cure blindness diseases. In addition, the company is engaged in developing a vaccine for COVID-19. The company’s technology pipeline includes COVID-19 Vaccine (0.5), Modifier Gene Therapy Platform, and Novel Biologic Therapies for Retinal Diseases.
Last month, the Former Attorney General of Louisiana, a partner at the law firm of Kahn Swick & Foti, LLC (“KSF”), announced KSF’s investigation to OCGN. OCGN revealed that it would pursue a “biologics license application” with the U.S. Food and Drug Administration for its COVID-19 vaccine product rather than the Emergency Use Authorization process that it had previously stated it would utilize. Therefore, OCGN has been charged in a securities class action lawsuit for failing to disclose material information and violating federal securities laws.
During the second quarter that ended June 30, 2021, OCGN’s total operating expenses increased 651.2% year-over-year to $25.61 million. The company’s loss from operations grew 660.8% from the year-ago value to $25.61 million. Its net loss rose 618.1% from the prior-year quarter to $25.95 million. Also, the company’s loss per share came in at $0.13 during this quarter.
OCGN has failed to surpass the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is estimated to decline 100% in the next quarter. OCGN’s stock has lost 8.5% over the past month and 9.7% over the past three months. But the stock has gained 7.1% over the past six months.
OCGN’s POWR Ratings reflect its poor prospects. The stock has an overall grade of F, which equates to a Strong Sell rating in our POWR Ratings system. OCGN has an F grade for Stability, Sentiment, and Quality. In the F-rated Biotech industry, it is ranked #502 out of 503 stocks.
Click here to see additional grades for OCGN (Growth, Value, and Momentum).
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BYND shares were trading at $105.47 per share on Thursday afternoon, up $4.15 (+4.10%). Year-to-date, BYND has declined -15.62%, versus a 19.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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