Meme stocks have been among the most talked-about subjects in the investing world this year. With retail investors successfully squeezing out short-selling institutional investors on several occasions, the stock market has seen an unprecedented trend. According to a Yahoo finance report, retail investor involvement is positive for returns.

Share prices of meme stocks such as GameStop Corp. (GME) and AMC Entertainment Holdings, Inc.’s (AMC) have skyrocketed this year. However, several of these stocks soared based on investors’ optimism despite poor fundamentals. So, betting on such stocks could be extremely risky. 

Given this backdrop, we think it could be wise to avoid meme stocks like Snap Inc. (SNAP), Archaea Energy Inc. (LFG), and Allakos Inc. (ALLK).

Snap Inc. (SNAP)

Known as a ‘camera company,’ SNAP offers Snapchat a camera application with functionalities such as Camera, Communication, Snap Map, Stories, and Spotlight. The company also provides Spectacles, an eyewear product that connects Snapchat and captures video from a human perspective, and advertising products, including AR and Snap ads.

Several law firms have launched investigations against SNAP for potential violations of rules 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. It is alleged that the company made false and misleading statements to the market that Apple Inc.’s (AAPL) device privacy changes were having a material adverse impact on its advertising business.

SNAP’s operating loss for the fiscal third quarter ended September 30, 2021, increased 8% year-over-year to $180.82 million. The company’s sales and marketing and general and administrative expenses increased 51.5% and 38.8% year-over-year to $217.52 million and $175.27 million, respectively.

Analysts expect SNAP’s EPS for the quarter ending June 30, 2022, to decrease 2.9% year-over-year to $0.10. Over the past three months, the stock has lost 38.6% to close Thursday’s trading session at $48.68.

SNAP’s bleak prospects are reflected in its POWR Ratings. According to our rating system, it has an overall rating of F, which translates to Strong Sell. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

It has a D grade for Value, Stability, and Quality. It is ranked #72 out of 77 stocks within the F-rated Internet industry. Click here to see SNAP’s Growth, Momentum, and Sentiment ratings.

Archaea Energy Inc. (LFG)

LFG is a renewable energy company specialized in recovering and processing biogas from landfills and other non-fossil, low-carbon fuel sources. It is engaged in designing, building, owning, and operating facilities that convert the biogas into renewable natural gas (RNG) or use processed biogas to produce renewable electricity.

For the fiscal third quarter ended September 30, 2021, LFG’s general and administrative expenses increased 651.2% year-over-year to $9.05 million. The company’s operating loss increased 1,500% year-over-year to $9.42 million. Also, its net loss came in at $21.34 million, up 3,445% year-over-year.

LFG’s EPS is expected to remain negative in fiscal 2021. The stock has lost 10% over the past month to close Thursday’s trading session at $18.03.

LFG’s POWR Ratings reflect these weak prospects. It has an overall F grade in our rating system, equating to a Strong Sell. In the F-rated Utilities – Domestic industry, it is ranked last. It has an F grade for Value, Sentiment, and Quality and a D grade for Stability. To see the ratings of LFG for Growth and Momentum, click here.

Allakos Inc. (ALLK)

ALLK is a clinical-stage biopharmaceutical company that develops therapeutic antibodies selectively targeting immunomodulatory receptors on the surface of immune effector cells involved in allergic, inflammatory, and proliferative diseases. Its lead monoclonal antibody, lirentelimab (AK002), is in a phase III study to treat eosinophilic gastritis and eosinophilic duodenitis.

ALLK’s research and development expenses for the fiscal third quarter ended September 30, 2021, increased 43.4% year-over-year to $43.60 million. The company’s general and administrative expenses increased 57.8% year-over-year to $19.10 million. Its net loss came in at $62.70 million, up 49% year-over-year, while its loss per share increased 35% year-over-year to $1.16.

Analysts expect ALLK’s EPS to remain negative for fiscal 2021 and 2022. It missed consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has lost 93% to close Thursday’s trading session at $10.45.

ALLK’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of D, which translates to a Sell.

It has a D grade for Growth, Momentum, and Quality. It is ranked #403 out of 469 stocks in the F-rated Biotech industry. Click here to see the additional ratings of ALLK for Value, Stability, and Sentiment.

SNAP shares fell $0.09 (-0.19%) in after-hours trading Monday. Year-to-date, SNAP has declined -2.86%, versus a 29.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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