A couple of weeks ago, there was significant activity (particularly in media coverage) regarding the seeming resurgence of meme stocks. The classics of the meme mania, AMC Entertainment (NYSE:AMC) and GameStop (NYSE:GME), rocketed higher. However, nearly as quickly as excitement for meme stocks regained momentum, the fervor seems to be fading again.
Yet this does not imply that the short-lived meme mania failed to benefit some. For instance, GameStop raised $933 million during the rebound, and its share price has slightly recovered. Perhaps meme stocks are transitioning from mania to a consistent trend. Or perhaps higher interest rates and falling savings among Americans indicate that retail investors continue struggling to participate in the market. Regardless, the recent skyrocketing of certain stocks shook up the market, calling for an examination of a potential fallout.
Following two weeks of stock memery, it is plausible that several meme stocks caught up in the short-lived mania have become overcooked. Even if other meme stocks manage continued growth, the following three appear dangerously close to a major fall.
AMC Entertainment (AMC)
The movie theater chain that became synonymous with the meme stock phenomenon understandably saw its share price boosted earlier this month with the renewed interest in these assets. However, unlike other meme stocks, AMC did not take advantage of the upsurge in its share price to issue additional shares.
AMC’s financials have not changed to justify its stock price trading over 50% higher than at the start of the month. In fact, the entire movie theater industry had a poor month, with the key Memorial Day weekend box office returns being the worst in nearly three decades. Major films “Furiosa” and “Garfield” underperformed, and ticket sales dropped 36% from the previous month.
The company is unprofitable and carries approximately $9 billion in debt in a high-interest rate environment. The average analyst price target is lower than the current stock price by almost 10%. Absent significant changes, there appear to be no reasons to expect an upside in AMC stock.
Meta Materials (MMAT)
The nanocomposite materials company Meta Materials (NASDAQ:MMAT) was once part of the meme stock craze. When the trend briefly regained momentum earlier this month, its stock price fluctuated along with increased trading volume. However, interest waned quickly, and MMAT stock declined.
Meta Materials has been unable to achieve stability and its operations now exhibit common signs of distress among businesses nearing closure. This includes a 100-to-1 reverse stock split in January in an attempt to maintain listing requirements. The company recently announced it would lay off roughly 80% of its workforce.
While it reported higher quarterly revenues, expenses of $16.1 million far overshadowed sales, leaving only $10.2 million in available cash. Meta Materials may be able to survive if it can secure additional funding. However, due to ongoing challenges, it is best avoided in investment portfolios for the time being. Despite being up over the past three months, MMAT stock trades over 50% lower year-to-date (YTD).
Hut 8 Mining (HUT)
There is debate as to whether the small crypto mining company Hut 8 Mining (NASDAQ:HUT) qualifies as a meme stock. Its price movements often correlate with meme stocks and so does interest in Bitcoin (BTC-USD).
HUT stock increased almost 30% a couple of weeks ago when meme stocks garnered attention. However, the gains may be overwrought now as the company reported disappointing Q1 earnings. Mining costs more than doubled following the halving event, with the company reporting a net profit only due to accounting adjustments. Its reported income of $233.5M included a $274.6M gain from the early adoption of new Australian accounting rules.
Hut 8 may be more vulnerable among crypto mining companies since the halving has pushed low costs to the fore. As a smaller company, it lacks economies of scale to reduce expenses. Analysts expect the company’s losses to continue into the next quarter, with the average earnings estimate at -0.06.
On the date of publication, Stavros Tousios 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.