We’ve all seen the headlines – “Reddit traders squeeze hedge funds!” “Meme stocks defy gravity!” For a while there, it seemed like anyone could throw cash into a random ticker and watch it skyrocket. Of course, meme stock prices still do spike from time to time. However, I see any sort of capital inflow into these stocks as water being thrown off a sinking ship with a bucket. Gravity will continue to catch up to these previous high-flyers over the long-run.
Don’t get me wrong, I love the chaos and community that meme stocks have created. Droves of regular investors banding together to pump up struggling companies and stick it to the suits on Wall Street? What’s not to love?
But ultimately, most of these companies don’t have strong enough fundamentals to justify their inflated valuations. Most of these meme stocks are businesses that burn a lot of cash and constantly need to dilute their investors to fund all their spending. Thus, the smartest idea is to bet against these sinking ships.
With that said, here are three meme stocks I think could get absolutely crushed moving forward.
Beyond Meat (BYND)
Beyond Meat (NASDAQ:BYND) focuses on plant-based meat alternatives. As a California-based company trying to find a foothold in a nation full of carnivores, I doubt its potential for growth or profitability. The core issue with this company is simple: Beyond Meat’s products cost nearly 50% more than traditional meat.
This factor alone limits Beyond Meat’s customer base to a narrow slice of affluent, eco-conscious consumers willing to pay premium prices, primarily in progressive urban centers. Could the average American family in rural Iowa or the deep south with a modest income afford these meat alternatives regularly? I sincerely doubt it. And with the company still far from achieving positive earnings per share, Beyond Meat relies on heavy dilution to raise cash as losses expand year after year.
With over $1.2 billion in debt weighing on the company, I need help to see a viable path forward, even if ethics and health concerns gradually turn more consumers towards plant-based options. This niche is just too small, and competition too fierce. Ultimately, Beyond Meat feels less like a promising growth stock and more like an idealistic experiment with little chance of justifying its current valuation. The hype train may keep running, but gravity will catch up with this company sooner or later.
Mullen Automotive (MULN)
Mullen Automotive (NASDAQ:MULN) is another hype-driven stock that has detached from reality. This fledgling EV company has minimal sales and a record of broken promises and delays. Yet, speculation fed by splashy headlines has pushed its stock price ever higher even as red flags pile up.
To me, Mullen is the poster child for “irrational exuberance.” Its promised vehicles seem to always be years away from production, while competitors rush affordable EVs to market. And even if Mullen can get models out the factory door, its prices look impossibly high, limiting the company’s total addressable market size in the budget-conscious crossover and sedan segments. I fear Mullen has dug itself into a hole it can’t escape.
Adding insult to injury, Mullen continues to finance itself through punitive dilution that destroys shareholder value quarter after quarter. The company just did a 1-for-100 reverse split to artificially boost its stock price after heavy declines. With more dilution likely in 2024 due to Mullen’s cash burn, I believe shareholders face tremendous downside risk. This EV name has “ticking time bomb” written all over it.
Maybe I’m missing something, and Mullen has some ace up its sleeve. But from every angle I examine, Mullen looks more and more like a failing EV startup grasping at straws to stay alive. I’ll be shocked if MULN stock doesn’t return to sub-$1 per share levels within the next year.
FaZe Holdings (FAZE)
Moving to FaZe Holdings (NASDAQ:FAZE), this entertainment company tied heavily to gaming influencers and esports faces a structural decline. Unlike video game developers with proprietary IP to leverage, FaZe relies almost solely on the popularity of its roster of creators and teams. This leaves the company’s fortune hostage to evolving trends in a notoriously fickle industry.
One look at FaZe’s income statement validates my concerns. Last quarter, the company saw widening losses on declining revenue as brand sponsorships dried up. FaZe faces immense challenges making money off merchandise and digital content, when hot new creators consistently emerge to steal market share. Efforts to tap into Web 3.0 with NFTs have thus far failed to bear fruit.
Esports athletes and YouTube stars come and go, and FaZe lacks durable competitive advantages or intellectual property to monetize this space. In this tumultuous environment, I expect the company’s valuation multiples to contract sharply.
Buzzwords like “metaverse” and “Web 3” have failed to keep investors hooked. And with trends in gaming shifting, FaZe is getting left behind in terms of sponsorship dollars. For these reasons, I anticipate shares falling significantly this year.
On the date of publication, Omor Ibne Ehsan 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.
