While inflation was widely considered “transitory,” and easy money was making its way into inflated markets, a few unlikely stocks found themselves at the focus of an unprecedented hype created by the WallStreetBets group, a forum or “subreddit” on the popular social media platform Reddit. The group, born in January 2012, discusses speculative investing using lots of memes, videos, inside jokes, and terminology.
A lot has changed since then. For starters, Fed Chair Jerome Powell has dropped the word “transitory” from his dictionary, and the Federal Reserve’s ever-tightening monetary policy has caused hopes of a soft landing for the economy to all but fades into oblivion.
‘Growth at any cost’ and ‘no price too high’ have made way for consistent profitability for the right price, and Greater Fool Theory has made way for astute value investing with no margin of safety too good amid increasing risk-free returns from the U.S Treasury.
Given such a sea change in macroeconomic and market conditions, fundamentally weak Reddit stocks AMC Entertainment Holdings Inc. (AMC), FIGS, Inc. (FIGS), and Amyris, Inc. (AMRS) seem to have run their course and are falling knives best sold short or avoided altogether.
AMC Entertainment Holdings Inc. (AMC)
As a theatrical exhibition company, AMC owns, operates, and has interests in theaters in the United States and worldwide. The Company operates through two segments: U.S. markets and International markets.
On December 19, AMC updated that it had raised $162 million of equity capital through sales of 125.9 million AMC Preferred Equity Units.
On December 14, AMC announced that it has partnered with Visa (V) and deserve to launch the AMC Entertainment Visa Card. It is expected to be available in early 2023.
These developments come at a time when the Federal Reserve is aiming to control inflation by restricting liquidity and consequently slowing discretionary expenditure. Moreover, given the evolving situation of a potential resurgence and spread of Covid, benefits of such additional investments are not expected to accrue to shareholders.
On October 20, AMC’s Subsidiary Odeon Finco PLC announced that it had completed its private offering of $400.0 million aggregate principal amount of 12.750% senior secured notes due 2027 at an issue price of 92.00%. Exposure to expensive debt in a rising interest rate environment may hinder the company’s bottom-line growth.
For the third quarter of the fiscal year 2022 ended September 30, AMC’s adjusted EBIDTA loss widened 138.9% year-over-year to $12.9 million, while its net loss widened 1.2% year-over-year to $226.9 million. This resulted in an adjusted quarterly loss of $0.20 per share.
Analysts expect AMC’s loss per share for the fourth quarter of the current fiscal year (ending December 2022) to widen 27.3% year-over-year to $0.14. Additionally, the company is expected to keep reporting losses over the next two fiscals.
The stock has declined 28.5% over the past month and 67.5% year-to-date to close the last trading session at $5.30.
Due to its weak performance, AMC has an overall rating of D, which translates to Sell in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
AMC has a grade of F for Stability and a D for Value, Sentiment, and Quality.
AMC is ranked last among five stocks in the F-rated Entertainment – Movies/Studios industry.
Click here to see additional POWR Ratings for Growth and Momentum for AMC.
FIGS, Inc. (FIGS)
FIGS is a healthcare apparel and lifestyle brand. Its offerings include scrub wear, lifestyle apparel, and other non-scrub offerings, such as lab coats, under scrubs, outerwear, loungewear, compression socks, footwear, and masks.
FIGS designs all its products in-house, leverages third-party suppliers and manufacturers for production and sells direct-to-consumer through its digital platform.
FIGS had been involved in litigation pursued by Strategic Partners, Inc. (SPI), also known as Careismatic Brands, for four years. Although the jury in the United States District Court for the Central District of California adjudicated in favor of FIGS, the protracted litigation is supposed to have drained resources and dented the reputation of the company significantly.
During the third quarter of fiscal 2022, ended September 30, FIGS reported net revenue of $128.59 million. During the same period, the company’s adjusted EBITDA decreased 5.3% year-over-year to $21.03 million, while its adjusted net income decreased 56.2% year-over-year to $4.13 million. As a result, the company’s adjusted EPS came in at $0.02, down 60% year-over-year.
Analysts expect FIGS to report an adjusted EPS of $0.01 for the fourth quarter of the fiscal ending December 2022. This translates to a decrease of 88.9% over the previous-year quarter. For the entire fiscal, the company’s EPS is expected to decrease 61.7% year-over-year to $0.11. Moreover, the company has missed consensus EPS estimates in two of the trailing four quarters.
FIGS’ weak fundamentals are reflected in its POWR Ratings. It has a grade of F for Stability and a D for Growth, Momentum, and Sentiment.
FIGS is ranked #32 of 46 stocks in the Specialty Retailers industry. Click here to see additional ratings for FIGS’ Value and Quality.
Amyris, Inc. (AMRS)
AMRS is a synthetic biotechnology company involved in engineering, manufacturing, and marketing high-performance, natural, and sustainably sourced products by applying its Lab-to-Market biotechnology platform.
On October 24, AMRS announced the launch of two new brands: Stripes and EcoFabulous, under its consumer portfolio. This announcement closely followed the company’s October 11 announcement regarding the inclusion of three of its consumer brands: Biossance, JVN Hair, and Rose Inc., in Sephora's launch in the United Kingdom (UK).
With major central banks increasing interest rates to tame inflation while being prepared to risk reduced discretionary expenditure and an economic slowdown, it may be quite some time before the benefits of this expansion get accrued to the company’s shareholders.
For the fiscal 2022 third quarter, ended September 30, AMRS’ adjusted EBITDA loss widened 82% year-over-year to $131.71 million, while the non-GAAP net loss attributable to AMRS’ shareholders increased 79.7% year-over-year to $142.53 million. This translated to a 69.2% year-over-year deterioration in quarterly loss per share to $0.44.
Analysts expect AMRS’s revenues for fiscal 2022 to decline 12.4% year-over-year to $299.60 million. The company’s loss per share is expected to widen by 14.3% to $1.06 during the same period. Moreover, AMRS has missed consensus EPS estimates in three of the trailing four quarters.
The stock has declined 62% year-to-date to close the last trading session at $2.23. A continuation of weakness in share price risks exposing the stock to further downside if institutional investors, with 38% holdings, feel compelled to sell the stock.
AMRS’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. It has a grade of F for Value, Stability, Quality, and Sentiment and a D for Growth.
Unsurprisingly, AMRS is ranked penultimate among 90 stocks in the Chemicals industry. Click here to see all POWR Ratings for AMRS.
AMC shares were trading at $4.78 per share on Thursday afternoon, down $0.52 (-9.81%). Year-to-date, AMC has declined -82.43%, versus a -18.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
3 Reddit Stocks to Continue to Avoid or Sell Short in 2023 StockNews.com
