Despite fundamental challenges, meme stocks swept the market by storm last year with their logic-defying rally. Retail investors banded together on social media forums like Reddit's WallStreetBets and engaged in aggressive wagering against major hedge funds, which led to a significant short-squeeze in several equities.
These unheard-of gains, however, were not supported by strong fundamentals or encouraging news. As a result, the stocks suffered massive sell-offs, resulting in significant losses for retail investors.
Stocks have been falling deeper into bear territory since the Fed raised interest rates by 75 basis points for the third time in a row. Furthermore, given the Federal Reserve's commitment to keeping inflation under control, the stock market is expected to continue under pressure in the coming months.
Therefore, it could be wise to avoid fundamentally-weak Reddit stocks AMC Entertainment Holdings Inc. (AMC), Riot Blockchain Inc. (RIOT), and Zomedica Corp. (ZOM).
AMC Entertainment Holdings Inc. (AMC)
AMC is a prominent theatrical exhibition company. The company, through its subsidiaries, provides theatrical exhibition, movie screening, food distribution, online ticket booking, and other related services. The company owns, operates, and has interests in theaters in the United States and worldwide.
According to a filing by AMC, it has entered into an equity distribution arrangement under which it may sell up to an additional 425 million AMC preferred equity units (APEs), raising about $1.7 billion. AMC said the proceeds will be used "primarily to repay, refinance, redeem or repurchase the company's existing indebtedness."
However, this could hurt investor sentiment as those equity units could eventually be converted to common shares, creating massive dilution to existing shareholders.
AMC's revenue increased 162.3% year-over-year to $1.17 billion in the second quarter ended June 30, 2022. However, the company's operating costs and expenses rose 59.5% from the year-ago value to $1.18 billion. The company reported an operating loss of $16.10 million and a net loss of $121.60 million.
Analysts expect its EPS to decline 217% per annum over the next five years. Also, its EPS is expected to remain negative in the current and next year. In addition, AMC failed to surpass the consensus EPS estimates in two of the trailing four quarters. The stock has declined 80% over the past year and 73.9% year-to-date.
AMC's POWR Ratings are consistent with this bleak outlook. The stock's overall D rating translates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
AMC has been graded an F for Stability and a D for Sentiment. Within the F-rated Entertainment – Movies/Studios industry, it is ranked last of six stocks.
To see additional POWR Ratings for Growth, Quality, Value, and Momentum for AMC, click here.
Riot Blockchain Inc. (RIOT)
RIOT and its subsidiaries focus on bitcoin mining operations in North America. The company operates in three segments: Bitcoin Mining; Data Center Hosting; and Electrical Products and Engineering. It operated around 30,907 miners as of December 31, 2021.
RIOT’s revenue increased 112% year-over-year to $72.9 million for the second quarter ended June 30, 2022. However, its net loss came in at $366.3 million, compared to a net income of $19.3 million in the prior-year quarter.
Its loss per share amounted to $2.81, compared to an EPS of $0.22 in the second quarter of 2021. The company reported a non-GAAP adjusted EBITDA loss of $65.2 million, compared to an adjusted EBITDA of $2.4 million.
Its EPS is expected to decline 2987.5% and remain negative in the current year. The stock has declined 71.5% over the past year and 68.3% year-to-date.
RIOT'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 and Quality and a D for Value. In the D-rated Technology – Services industry, it is ranked #78 of 80 stocks.
In addition to the POWR Ratings grades I have just highlighted, you can see RIOT ratings for Momentum, Growth, and Sentiment here.
Zomedica Corp. (ZOM)
Veterinary health company ZOM develops companion animal solutions to meet the unmet needs of clinical veterinarians. Additionally, it has partnerships with Celsee, Inc. to develop and commercialize liquid biopsy assays and related consumables for cancer detection in companion animals and with Seraph Biosciences, Inc. to develop and sell a unique pathogen detection system.
ZOM's revenue increased significantly year-over-year to $4.2 million for the second quarter ended June 30, 2022. However, its selling, general and administrative expenses surged 71% from the prior-year quarter to $8.6 million. The company’s net loss grew 14% from the year-ago value to $5.3 million, while its loss per share amounted to $0.005.
The stock has declined 58.2% over the past year and 19% over the past month.
ZOM’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
It also has an F grade for Quality and Stability and a D for Sentiment. ZOM is ranked #199 of 201 stocks in the F-rated Medical - Pharmaceuticals industry.
Click here to see the additional POWR Ratings for ZOM (Momentum, Value, and Growth).
AMC shares were trading at $7.12 per share on Friday afternoon, up $0.02 (+0.28%). Year-to-date, AMC has declined -73.82%, versus a -23.36% 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.
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