In a meme stock frenzy, it seems that every other stock is surging higher. Of course, stocks of companies with weak fundamentals participate in the meme stock rally.
However, some type of catalyst is needed from a business perspective to support a big rally. Truly, stocks will disappoint during the next meme frenzy. This column discusses three meme stocks to avoid as they represent businesses with weak fundamentals coupled with absence of any positive catalysts from a business growth perspective.
It’s worth noting that there are early indications of a wider meme stock rally. I believe that once the fed starts cutting interest rates, a full-fledged meme euphoria will be underway. Therefore, it’s a good time to buy meme stocks for multibagger returns at the blink of an eye. However, it’s equally important to be selective even while speculating.
Let’s talk about the reasons that make these meme stocks unattractive.
GameStop (GME)
GameStop (NYSE:GME) was the torchbearer of the meme stock euphoria of 2021. However, GME stock largely remained in a correction mode with financials developments remaining disappointing. After touching 52-week lows of $10 in March, GME stock skyrocketed to highs of $64.8. However, with phases of high volatility, the stock has declined to current levels of $27.
If there was a meme rally due for GME stock, it seems to be over. I don’t see the stock surging again as there are other interesting names that will take the centre stage. It’s worth noting that for Q1 of 2024, GameStop reported revenue of $882 million. Year-over-year (YOY), revenue declined sharply, and GameStop continued to report operating level losses.
GameStop holds $1.1 billion in cash as of Q1. However, that’s unlikely to be a catalyst for the stock trending higher. If operating losses sustain, the company will continue to burn cash. Also, the sharp decline in revenue is concerning in a highly competitive market. Therefore, there is complete absence of any positive news from a business perspective.
Lucid Group (LCID)
Lucid Group (NASDAQ:LCID) listed with some big plans in 2021 and was among the hottest electric vehicle (EV) stocks.
However, it didn’t take time for the markets to understand that Lucid Group had steep growth targets that were unlikely to be achieved. This triggered the beginning of a sustained correction for LCID stock, and I don’t see hopes of any strong reversal.
Specific to the EV company, two big negatives stand out. First, amidst all the ambitious plans and launches, deliveries growth has remained subdued. I don’t see any major catalyst for sharp upside in deliveries. With intense industry competition and macroeconomic headwinds, Lucid Group will continue to struggle.
Further, LCID has been reporting significant cash burn. The EV company ended 2023 with a strong cash buffer of $4.78 billion. However, operating level losses for 2023 were $3.1 billion. It’s unlikely that losses will narrow significantly and as cash burn sustains, Lucid Group will be forced to dilute equity further. Therefore, I don’t see any reason for LCID stock trending higher.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) stock has plunged by 80% in the last 12 months. However, the deep correction does not make CHPT stock attractive even from a trading perspective. I expect further downside with business progress remaining disappointing.
If I had to consider exposure to meme stocks from the EV charging infrastructure space, better ideas exist, like Blink Charging (NASDAQ:BLNK) and Wallbox (NYSE:WBX).
Notably, the EV charging industry has ample room for growth in U.S. and Europe. Most of the emerging EV charging companies have been reporting healthy revenue growth. However, ChargePoint Holdings has disappointed on that front.
For Q1 of 2024, the EV charging company reported revenue of $107 million, which was lower by 18% YOY. At the same time, loss from operations for the quarter was $67.1 million. Therefore, the concerns are in multi-folds for the company. ChargePoint Holdings has guided for positive adjusted EBITDA by Q4 of 2025. However, it remains to be seen if cost can be curbed to get the company back to revenue growth.
On the date of publication, Faisal Humayun did not hold (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.