Newegg Commerce, Inc. (NEGG - Get Rating) is an online electronic products retail platform offering software, gaming products, computer hardware products, cell phones, and other related accessories. Its shares soared 88.6% over the past three months and 360% over the past year owing to the retail-trader-driven meme-stock blitz. But the stock is currently trading 74.3% below its 52-week high of $79.07, indicating short-term bearishness.

Although NEGG’s recent announcement that it would become the first e-retailer to accept Litecoin (LTC) cryptocurrency on BitPay has garnered significant investor attention, the stock remains highly volatile as the social-media hype has started to fade.

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

Fading Meme-Stock Craze

The Reddit-influenced retail trading has primarily driven NEGG’s skyrocketing rally over the past month. However, the retail interest in the stock has started fading, with some Reddit traders warning that the stock was “cheap paper.” Moreover, Jim Cramer, the CNBC host, called the rally “ridiculous games of musical chairs,” criticizing the stock on Twitter. Also, with shares of other meme stocks like AMC Entertainment Holdings, Inc. (AMC) and Gamestop Corporation (GME) losing ground, it appears that the interest in meme stocks is waning. Since meme stocks like NEGG have been pushed well ahead of their fundamental strength, they will likely plummet in the near term.

Lackluster Financials

In July, NEGG’s controlling stockholder Hangzhou Lianluo Interactive Information Technology Co., Ltd issued a public filing stating that it expects the gross merchandise value (GMV), net sales, and net income of NEGG for the six months ended June 30, 2021, to increase over the GMV, net sales and net income for the same period in 2020.

For the fiscal year ended December 31, 2020, NEGG reported a gross loss of $288,117. In addition, it incurred an operating loss of $2.97 million and a net loss of $3.24 million. Moreover, NEGG’s comprehensive loss came in at $3.09 million over this period.

Unfavorable POWR Ratings

NEGG has an overall rating of F, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. NEGG has a C grade for Growth. The stock’s inadequate financials are reflected in this grade.

Also, it has a C grade for Stability, indicating that the stock is prone to volatility. Moreover, the stock has a D grade for Sentiment.

Beyond the grades we’ve highlighted, one can check out additional NEGG ratings for Quality, Value, and Momentum here.

Of the 74 stocks in the F-rated Internet industry, NEGG is ranked #70.

View the top-rated stocks in the Internet industry here.

Bottom Line

Even though NEGG’s recent announcement to integrate the Litecoin payment option into its platform should allow it to capitalize on the growing enthusiasm for cryptocurrency use, investors should steer clear of the stock because its weak fundamentals are not in sync with its current price level. Moreover, given that the meme stock craze has started to fade, the stock could witness a downtrend. So, we believe it is wise to avoid the stock now.

NEGG shares were trading at $19.18 per share on Friday afternoon, down $1.15 (-5.66%). Year-to-date, NEGG has gained 362.17%, versus a 19.18% 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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