Traders are getting excited about penny stocks right now.
Keith Gill, a trader more well-known by the alias Roaring Kitty, resurfaced on social media with a tweet of a man holding a video game controller. Gill was a key player in the GameStop (NYSE:GME) short squeeze a few years ago, and his tweet seemingly sparked a 74% rally in GME stock on Monday.
It wasn’t just GameStop, either. Other meme stocks such as AMC Entertainment (NYSE:AMC) and Koss (NASDAQ:KOSS) blasted off on the Roaring Kitty news.
This excitement led to broader enthusiasm across the meme and penny stock arenas. Short sellers, remembering the outsized in volatility in 2021, rushed to reduce their exposure to these sorts of securities on Monday.
It’s tempting to play the meme stocks for a quick trade to the upside. However, not all of these heavily shorted companies are created equal; these three penny stocks to sell in particular are still bad bets even if a meme stock revival is upon us.
Tupperware Brands (TUP)
Tupperware Brands (NYSE:TUP) is one of the penny stocks that benefitted most from the Roaring Kitty news. TUP stock rocketed 36% higher on Monday despite there being no company-specific news to justify such a move.
Meanwhile, Tupperware’s financial outlook remains perilous. The company recently warned that it may struggle to remain a “going concern” given its challenged balance sheet and large operating losses.
The company’s prospects have dimmed both due to higher operating and input costs and also changing consumer behavior. Investors should be particularly cautious as Tupperware has struggled to file its recent annual reports on time, casting further uncertainty on the company’s financial outlook.
Could Tupperware manage to improve its financial situation and survive its current slump? It’s certainly possible. But a tweet from Roaring Kitty is unlikely to make any significant impact to Tupperware’s financial outlook. As such, this is a penny stock to sell on the recent rally.
Virgin Galactic (SPCE)
Virgin Galactic (NYSE:SPCE) seemed like a great idea. The visionary Richard Branson made a splash with his plan to make space tourism a reality. The stuff of science fiction would finally be available to the general public.
Unfortunately, it hasn’t been all smooth sailing for this space start-up. For one thing, Virgin Galactic isn’t necessarily space tourism of the sort you’d see in sci-fi films.
Rather, Virgin Galactic plans to offer merely short hops just above the atmosphere so that guests can enjoy a brief zero-gravity experience. This would be undoubtedly exciting, but it’s not exactly the same thing as going to the moon or a space station. Critics have suggested that there may not be demand for Virgin Galactic flights at the proposed price point.
Those concerns appear to be playing out. Virgin Galactic found demand to be underwhelming, and has since delayed its plans to begin regularly-scheduled commercial flights while it seeks to develop a better space vehicle. However, key partner Boeing (NYSE:BA) is now going after Virgin Galactic for allegedly not paying on $26.4 million of invoices along with misappropriating trade secrets.
This is just another headache for a firm that was already in trouble. Virgin Galactic has $418 million of long-term debt and $661 million of total liabilities, meaning that the clock is ticking for this penny stock to sell, given its large operating losses and lack of revenues. Mr. Branson also suggested that he doesn’t want to invest more money in the company, which further raises doubts about how Virgin Galactic will survive for the long haul.
ChargePoint Holdings (CHPT)
ChargePoint Holdings (NYSE:CHPT) is a company seeking to power up the electric vehicle landscape.
A few years ago, EV charging seemed like an obvious “picks and shovels” way to play the electric vehicle revolution. Regardless of which brands and models took off, the EV charging companies could be neutral third parties which would provide infrastructure for the underlying EV ecosystem.
Unfortunately, it’s proven more challenging than expected. Incumbent players such as Tesla (NASDAQ:TSLA) have already built out large charging networks, making the space more competitive. Meanwhile, costs for building out charging stations have been high and it’s taken longer to earn acceptable returns on investment than previously budgeted.
In fact, there’s no guarantee that ChargePoint is ever going to make it to sustainable profitability.
ChargePoint’s Q4 earnings results were dismal. Revenues plunged 24% year-over-year. The firm’s adjusted EBITDA loss widened. And worst of all, ChargePoint guided to just $105 million in midpoint Q1 revenues, compared to street estimates of $127 million.
CHPT stock jumped 12% on the Roaring Kitty news Monday. But there’s little fundamental reason for the surge, making this a penny stock to sell now.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More:Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Ian Bezek 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.