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4 Reddit Stocks to Avoid in September

Investors on Reddit’s WallStreetBets (WSB) forum usually focus on stocks with high short interest with the expectation of benefiting from a short squeeze. While retail traders’ bets against short sellers could potentially help the prices of such stocks to rally, they possess high investment risks. As such, popular Reddit stocks GameStop (GME), SoFi Technologies (SOFI), Virgin Galactic (SPCE), and Tattooed Chef (TTCF) could witness a downtrend in the near term. So, we think they are best avoided now. Read on.

With more than 10 million users, subreddit r/wallstreetbets (WSB) has propelled several fundamentally weak stocks to impressive price gains this year. The WSB community has successfully squeezed short sellers out of their positions and gained significantly from this earlier this year. However, the fundamental weaknesses in most of the Reddit plays have caused their rallies to be short-lived, and the stocks have declined quickly after hitting their price highs.

Though the market has been witnessing a relentless rally despite the resurgence of COVID-19 cases, experts believe the stock market is currently raising red flags similar to the dotcom bubble, which saw stocks soar in price despite their poor fundamentals. Consequently, we think investors should remain cautious and shift their strategies to survive a potential pullback in the near term.

Therefore, we think fundamentally weak stocks GameStop Corp. (GME), SoFi Technologies Inc. (SOFI), Virgin Galactic Holdings Inc. (SPCE), and Tattooed Chef Inc. (TTCF), which are favorites of investors on the Reddit forum, are best avoided now.

GameStop Corp. (GME)

GME, which is headquartered in Grapevine, Tex., is a specialty retailer that sells games and entertainment products through e-commerce and various stores in the United States, Canada, Australia, and Europe. It operates stores and e-commerce sites under the GameStop, EB Games, and Micromania brands, and collectibles stores under the Zing Pop Culture and ThinkGeek brand. In addition, the company offers Game Informer, a print and digital video game publication that features reviews of new title releases, game tips, and news regarding the video game industry.

In July, GME announced the expansion of its North American fulfillment network and a leasing agreement for a 530,000 square foot facility in Reno, Nevada, which is set to open in 2022. But while the company's new location will enable it to expand its product offerings, it will lead to a significant cash outlay in the near term.

GME’s operating loss came in at $40.8 million in the first quarter, ended May 1, 2021. The company reported a $66.8 million net loss, while its loss per share amounted to $1.01. Its  net cash used in operating activities came in at $18.8 million.

GME’s EPS is expected to decline at a 48.2%  rate  per annum over the next five years. A $5.45 billion consensus revenue estimate for the next year represents a 2.2% decline year-over-year. Although the stock soared 976.2% in price year-to-date, driven by the Reddit-fueled meme stock rally, it has declined 21.5% over the past three months.

GME’s POWR ratings are consistent with this bleak outlook. The stock has an overall D rating, which 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.

GME has been rated  F grade for Stability, and  D for Value and Sentiment. Within the B-rated Specialty Retailers industry, it is ranked #36 of 40 stocks.

To see additional POWR Ratings for Growth, Quality, and Momentum for GME, click here.

SoFi Technologies Inc. (SOFI)

SOFI, a San Francisco-based finance company, operates an online platform that provides financial services. Lending; Financial Services; and Technology Platforms are the company’s three operational segments. The company offers a wide range of services, including student loan refinancing, private student loans, personal loans, auto loan refinance, home loans, mortgage loans, investments, and insurance products for renters, homeowners, automobiles, and others.

For the second quarter, ended June 30, 2021, SOFI reported a $165.31 million net loss , versus  a $7.81 million net profit in the prior-year quarter. Its loss per share increased significantly from its year-ago value to $0.48, while its cash and cash equivalents declined 47.1% year-over-year to $461.92 million. In addition, the company’s net cash from operating activities declined 79.1% from its year-ago value to $82.61 million.

Analysts expect its EPS to remain negative in its fiscal year 2021. The stock has declined 33.2% in price over the past three months.

SOFI’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.

It also has an F grade for Value, and a D for Growth and Stability. In addition, SOFI is ranked #103 of 106 stocks in the D-rated Financial Services (Enterprise) industry.

Click here to see the additional POWR Ratings for SOFI (Quality, Momentum, and Sentiment).

Virgin Galactic Holdings Inc. (SPCE)

SPCE is a fully integrated aerospace company based in Las Cruces, N.M., that develops human spaceflight for private individuals and researchers. The company's spaceship operations include commercial human spaceflight and flying commercial research & development payloads into space. In addition, it designs,  develops, and manufactures ground and flight testing, and post-flight maintenance of spaceflight vehicles.

During the second quarter, ended June 30, 2021, SPCE’s operating loss increased 17.2% year-over-year to $73.90 million. Its net loss increased 30.7% year-over-year to $94.04 million, while its loss per share grew 14.7% from the prior-year quarter to $0.39. The company’s cash and cash equivalents declined 17.2% year-over-year to $551.62 million.

SPCE’s  EPS is expected to decline 20% year-over-year to $1.5 in its fiscal year 2021. Over the past month, the stock has declined 22.7% in price and 24.2% over the past six months.

SPCE’s weak fundamentals are reflected in its POWR ratings. The stock has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The stock also has an F grade for Value, Sentiment, and Stability. In the F-rated Airlines industry, it is ranked last of 31 stocks.

In addition to the POWR Ratings grades we have just highlighted, one  can see the SPCE rating for Growth, Quality, and Momentum here.

Tattooed Chef Inc. (TTCF)

TTCF produces and sells plant-based frozen meals. The Paramount, Calif.-based concern offers its products under the Tattooed Chef and private label brands. It operated 4300 retail stores as of December 31, 2020.

Last month, Pomerantz LLP started investigating TTCF on behalf of its investors. The investigation concerns whether the company and certain of its officers or directors have engaged in securities fraud or other unlawful business practices. The controversy could  negatively impact TTCF’s share price in the near term.

TTCF’s operating loss came in at $7.93 million, compared to a $168 million operating profit in the second quarter, ended June 30, 2021. The company reported a $53.20 million net loss , compared to a $916,000 net profit in the prior-year quarter. Its loss per share amounted to $0.65, compared to an EPS of $0.03 in the same period last year.

TTCF’s EPS is expected to decline 711.1% year-over-year to $0.55 in its fiscal year 2021. The stock has declined  3.5% in price year-to-date.

TTCF’s POWR ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.

TTCF also has an F grade for Stability, Quality, and Sentiment. In addition, the stock is ranked #78 of 81 stocks in the C-rated Food Makers industry.

Beyond the POWR Ratings grades I have just highlighted, one  can see the TTCF ratings for Value, Momentum, and Growth.


GME shares were trading at $209.51 per share on Tuesday morning, up $6.76 (+3.33%). Year-to-date, GME has gained 1,012.05%, versus a 21.64% 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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