Meme stock mania has been making a comeback in the past few weeks, but now, several analysts and experts advise against them, with some calling them “zombie stocks.”
As GOBankingRates previously reported, pandemic darlings such as Bed Bath & Beyond, GameStop and AMC have all been soaring since the start of the month, following increased chatter on some social media threads.
Indeed, Bed Bath & Beyond is up a whopping 316.3% in the past month, and 94.8% in the past five days. GameStop’s performance is more subdued, but still up 15% in the past month, and up 0.8% in the past five days.
Bed Bath & Beyond was the most mentioned stock on Reddit’s WallStreetBets board in the past 24 hours on Aug. 16, followed by GameStop, according to Quiver Quantitative.
Now, Bloomberg reports that the renewed frenzy has pushed several analysts to downgrade Bed Bath & Beyond, telling investors to sell the stock.
On Aug. 16, B Riley Securities analysts downgraded their rating to sell from neutral, saying that the retailer’s $1.65 billion valuation was “unrealistic,” according to Bloomberg.
Last week, analysts at Baird also downgraded the stock, saying that “fundamental risk/reward looks unattractive” with “market share losses accelerating and the company burning cash,” Bloomberg added.
As for GameStop, analysts at New Constructs included it in its list of “zombie companies facing severe cash burn,” MarketWatch reports.
“GameStop has played into the meme stock craze, announced a crypto/NFT business, and took a page from Tesla TSLA, -0.89%, one of the original meme stocks, by splitting its stock,” New Constructs CEO David Trainer wrote in a note, according to MarketWatch. “The company’s valuation simply cannot be justified by the deteriorating fundamentals of the actual business.”
Peter Cohan, an associate professor of management practice at Babson College and author of “Goliath Strikes Back,” told GOBankingRates earlier in August that the return of meme stock trading “tells me that we have turned the corner — investors are now looking for an excuse to buy.”
“This means that heavily shorted stocks — like BBBY and AMC — are attractive to the WSB crowd. By borrowing money to buy shares, they can drive up the prices. To limit losses, short sellers will close out their positions — buying to repay the stock they borrowed when they initiated their short positions. Such short squeezes drive up the price, ignite fear of missing out and draw in more individual traders hoping not to miss out on the fun,” he said.
Cohan added, however, that the bad news is that over the long run, there is little reason for optimism about the prospects for these companies.
“For example, BBBY has huge problems — a weak cash position, shrinking sales, poor merchandising and antiquated systems. There is nothing that has happened to make its shares worth 40% more than they were last week. One more bad headline about BBBY could send its shares plunging back down — closer to their true value — which is around $2 according to a Bank of America analyst,” he told GOBankingRates on Aug. 9.
More From GOBankingRates