Meme stocks emerged as a pandemic-induced distraction from standard investment techniques over the last year, with millennials participating avidly as retail investors, effectively pushing out short-selling institutional investors on many occasions.

However, the current market dip, triggered by mounting concerns over rising inflation, the Fed’s decision on interest rate hikes, and geopolitical tensions, has caused meme stocks to suffer. Meme stocks are high-risk investments that rely heavily on investor sentiment rather than macroeconomic fundamentals. So, as investors de-risk their portfolios to hedge against a potentially severe market retreat, meme stocks are projected to slump in the near term.

Given this backdrop, we think it could be wise to avoid fundamentally weak meme stocks Robinhood Markets Inc. (HOOD) and Vinco Ventures Inc. (BBIG).

Robinhood Markets Inc. (HOOD)

HOOD is a financial services platform that is based in Menlo Park, Calif. The company’s primary focus is on building cash management applications, such as equities, exchange-traded funds, options, and cryptocurrencies. The company’s platform allows users to trade stocks and exchange-traded funds (ETFs) listed in the U.S., as well as associated options and American depositary receipts (ADRs)

This month, The Schall Law Company, a national shareholder rights litigation firm, filed a complaint against HOOD for federal securities law violations. According to the complaint, the company made false and misleading claims to the market at the time of the IPO. HOOD had major revenue growth challenges, with its touted transaction-based revenues from cryptocurrency trading only giving a short boost to otherwise flat growth. Investors suffered losses when the market discovered the facts about the company.

HOOD’s revenue has increased 14% year-over-year to $362.71 million in the fourth quarter, ended Dec. 31, 2021. However, its operating expenses grew 162% from its year-ago value to $783.15 million. Its net loss was $423.27 million compared to $13.03 million in net income in the prior-year quarter. Its loss per share amounted to $0.49 compared to an EPS of $0.02 in the fourth quarter of 2020.

The company’s EPS is expected to remain negative in fiscal 2021. The stock has declined 67.2% in price over the past three months and 37% over the past month.

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

HOOD has been graded an F for Sentiment, Stability, and Growth. Within the F-rated Software – Application industry, it is ranked #163 of 165 stocks. To see additional POWR Ratings for Value, Quality, and Momentum for HOOD, click here.

Click here to check out our Software Industry Report for 2022

Vinco Ventures Inc. (BBIG)

BBIG is a consumer product R&D, manufacturing, sales, and delivery company that operates in North America, Asia Pacific, and Europe. Through e-commerce platforms, it provides toys, plush, homewares, and electronics to retailers, distributors, and manufacturers and personal protection equipment to governmental agencies, hospitals, and distributors. BBIG is headquartered in Bethlehem, Pa.

For the third quarter, ended Sept. 30, 2021, BBIG’s net revenue declined 11.5% year-over-year to $2.23 million. Its operating loss widened 1472% from its year-ago value to $25.17 million. The company’s net loss grew significantly from the prior-year quarter to $542.31 million, while its loss per share came in at $7.59.

The stock has declined 11.7% in price over the past six months and 39% over the past three months.

BBIG’s weak fundamentals are reflected in its POWR ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The stock has an F grade for Stability, Growth, and Value. In the D-rated Consumer Goods industry, it is ranked last of the 65 stocks.

In addition to the POWR Ratings grades I have just highlighted, you can see the BBIG rating for Sentiment, Momentum, and Quality here.

HOOD shares fell $1.42 (-12.23%) in premarket trading Friday. Year-to-date, HOOD has declined -42.57%, versus a -9.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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