Stocks To Sell

3 Meme Stocks Due to Run Out of Steam Soon

It’s safe to say that you just can’t keep meme stocks out of the equation. Especially after the recent meme stock rally, triggered by Keith Gill, aka “Roaring Kitty,” to social media, had the market buzzing again. Consequently, the OG meme stocks in GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) sprung back into action again. Yet within days, the rally lost its bite, leading investors to consider which overvalued meme stocks to sell immediately.

The joy of this month’s meme stock rally was remarkably short-lived compared to the original meme stock rally. GME investors, for instance, witnessed a massive erosion of value within a few days, losing north of $13 billion. Thus, the tremendous burst of equally swift decline is indicative of investing in stocks without a solid financial foundation. Here are three overvalued meme stocks to avoid:

GameStop (GME)

Investors in video game retailer GameStop finally snagged a win during the meme stock surge. However, as discussed earlier, the rally fizzled out quickly, with its investors losing a lot of money. Additionally, we saw GME stock rise 20% following the completion of a $933.4 million at-the-market offering.

While these developments might initially seem like a win, GME investors should recognize the fleeting nature of these surges. The core issues impacting the retailer are still as relevant as ever. Particularly, its failing transition from brick-and-mortar to digital sales remains a major challenge. As consumers gravitate towards digital game downloads, the company’s traditional revenue streams dry up, signaling deeper financial woes.

Revenue growth languishes at a negative 11%, while its 5-year average hovers around a negative 7%. Moreover, forward top-line estimates are also grim, at a negative 8.3%. Hence, despite the company’s noteworthy brief stock surge, it is unlikely to alter its challenging outlook.

AMC Entertainment (AMC)

After a brief meme stock rally, movie theatre chain operator AMC Entertainment was back in favor with investors. As a result, AMC stock is up 40% this month, a development its investors were itching to hear. However, it’s now back where it belongs in the red, shedding almost 17% in value. In the past year alone, it’s down an eye-catching 90% and roughly 31% year-to-date (YTD).

Moreover, its financials remain in shambles, with its first-quarter (Q1) adjusted EBITDA dropping by 545% to a negative $31.6 million. 2023 marked the fourth consecutive year the company posted a net loss, and this disappointing streak will likely continue.

Additionally, its crippling debt load stands at a whopping $4.5 billion, raising major concerns over its ability to service its debt burden. Compounding those woes is the murky landscape for movie theaters, where box office sales continue to struggle to reach pre-pandemic levels. Hence, with such a deplorable outlook ahead, it’s best to stay away from AMC stock at this point.

Tupperware (TUP)

Despite the recent surge in Tupperware (NYSE:TUP) stock, marked by the retail trading frenzy rather than company-specific news, its underlying financial health remains in jeopardy. The plastic product’s manufacturer highlighted its struggles to continue as a ‘going concern’ poses serious questions about its future. Its balance sheet remains burdened by massive operational losses, unlikely to be alleviated by the uptick in stock values.

Recent quarterly reports have left much to be desired, with revenue growth firmly in the negative. Perhaps even more concerning is its bottom-line picture, where its net income margin stands at a negative 33%. Similarly, its free cash flow margin is at a negative 3.6%, compared to its 5-year average of 4.6%.

However, the firm’s challenges are much deeper than just financial metrics. These problems stem from shifts in consumer behavior and rising costs. Tupperware’s traditional business model is under major duress as consumer preferences shift towards more sustainable alternatives. Definitely one of the overvalued meme stocks to avoid!

On the date of publication, Muslim Farooque 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.

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.

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