Investing in memes stocks has alternately proven to be extremely lucrative and also a very poor strategy. Pick a moment in time, and it’s easy to find a narrative that confirms or disconfirms the inherent value of the grouping of stocks, popularly known as stonks to detractors.
Whether meme stocks are up or down during a given period of time, they always suffer from groupthink. Serious investors need to do little more than read meme stock social media boards to understand that true investment analysis is not a strong characteristic of meme stocks. Instead, members blindly follow one another under the false pretense that their collective capital has enough influence to move markets in their favor.
That’s what’s broadly wrong with the meme stock movement. The three stocks discussed below are nothing more than memes to avoid as investments.
Faraday Future Intelligent Electric (FFIE)
Faraday Future Intelligent Electric (NASDAQ:FFIE) stock is sure to continue garnering a lot of attention following the most recent meme stock rally. It is alternately showing signs of a sustained return to much lower prices and exhibiting signs of spiking higher again. The cost of borrowing FFIE shares is also rising meaning its potential to hurt investors is increasing.
I probably won’t be able to dissuade any investors pursuing massive short-term gains from investing in Faraday Future Intelligence Electric. Investors who short the stock are very comfortable with risk and will ignore the greater truths about the company.
I have a much better chance of dissuading investors based on the company’s fundamental financial position. Remember, Faraday Future is a company that was at risk of delisting on the Nasdaq just a month ago. This rally won’t change that. It is one of many failed EV SPAC investments that will reward far fewer investors through meme stock rallies than it will hurt overall.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) is caught up in the recent meme stock rally, making it very dangerous for investors. The recent surge in interest is little more than an unpredictable game of chance for investors.
Be smart and avoid the company altogether. There’s nothing in the company’s financial statements that suggests any reasonable investor should believe in the company. Sales slumped by 18% during the first quarter. Profits fell during the same period.
Operational and net losses improved slightly but remained deeply negative overall. Beyond Meat reported a net loss of $54.4 million during the first quarter. That was slightly better than the $59 million net loss it incurred a year ago. Still, it’s no reason to invest in the company. The company’s Chief Executive Officer (CEO) noted demand softness for products which will be discontinued, including Beyond Meat Jerky.
The truth is the company is facing overall demand softness which is the best reason to avoid the stock entirely. Beyond Meat may be able to improve efficiency metrics moving forward. But none of it will matter unless the company can improve demand for its products drastically. That doesn’t look likely at all.
GameStop (GME)
GameStop (NYSE:GME) investors have lost $13 billion since last week. Internet presence ‘Roaring Kitty’ stoked the most recent price spike. Social media influencers continue to exert substantial influence over market dynamics.
What’s less certain is why anyone should continue to bet on GameStop. even those investors chasing a short squeeze should know better. Investors have been punished by GameStop before and the maximum of ‘fool me once shame on you, fool me twice shame on me’, comes to mind.
Anyway, $13 billion in losses is substantial and twice the market cap of GameStop. It’s being borne by retail investors. And for all the headlines about another bout of meme stock mania, remember that there are real human tragedies at the same time. You can’t blame anyone but the investors themselves. So don’t put yourself in a position to be one of them. It’s a dangerous game with severe consequences in many cases.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.