The meme stock craze is once again on the rise. Speculative trading caused an uproar on Wall Street in 2021 but soon fizzled out with markets turning volatile. In the current situation, market watchers are skeptical about the meme stock rallies.
A short squeeze can lead to a stock’s price skyrocketing to levels that do not justify its fundamentals. However, the strategy of benefitting from a stock’s short squeeze rally comes with its own risks.
Moreover, at their July meeting, the Federal Reserve officials expressed their commitment to raising interest rates as necessary to bring back inflation close to their 2% goal, even if it means slower economic growth and less consumer spending. This might induce more volatility in the market.
Given this backdrop, we think these potential short squeeze stocks WeWork Inc. (WE), Sientra, Inc. (SIEN), Lemonade, Inc. (LMND), and Stoke Therapeutics, Inc. (STOK) might be best avoided this week.
WeWork Inc. (WE)
WE offers flexible workspace solutions to individuals and organizations globally. The company provides workstations, private offices, and various amenities and services. The stock has a short float of 11.90%.
On July 19, the company announced the debut of WeWork Workplace, a new space management solution. The workplace is expected to provide companies with a universal platform that enables inventory management across office spaces, enhanced employee experiences, and space optimization. However, gains from the new offering might be stretched over a long period.
For the six months ended June 30, WE’s net cash provided by financing activities declined 69.8% year-over-year to $408 million. The company’s cash, cash equivalents, and restricted cash balance came in at $632 million, down 26.1% from the prior-year period.
Analysts expect WE’s EPS to come in at a negative $0.45 for the fiscal quarter ending September 2022.
The stock has declined 39% year-to-date and 24.9% over the past three months to close its last trading session at $5.25.
WE’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a Value and Stability grade of F and a Growth, Sentiment, and Quality grade of D. In the 43-stock Real Estate Services industry, WE is ranked last. The industry is rated D. Click here for the additional POWR Ratings for WE (Momentum).
Sientra, Inc. (SIEN)
SIEN is a medical aesthetics company that develops and sells medical aesthetics products worldwide. The company’s offerings include silicone gel breast implants, breast tissue expanders, and scar management products. It has a 21.11% of the short float.
On July 6, SIEN announced that the U.S. Food and Drug Administration (FDA) approved the Low Plus Profile Projection Breast Implant for breast augmentation in women at least 22 years old and for women of all ages undergoing breast reconstruction. The product was expected to be available in the country in late July.
SIEN’s net cash used in operating activities increased 105% year-over-year to $30.96 million in the six months ended June 30. Net cash provided by financing activities came in at $4.99 million, down 85.5% from the same period the prior year. Cash, cash equivalents, and restricted cash balance declined 69.4% from the prior-year period to $25.29 million.
Street expects SIEN’s revenue to come in at $22.19 million for the fiscal quarter ending September 2022.
SIEN’s stock has declined 73.3% year-to-date to close its last trading session at $0.98. It has gained 17.1% over the past month.
It’s no surprise that SIEN has an overall D rating, which translates to Sell in our POWR Ratings system.
SIEN has a D grade for Growth, Momentum, Sentiment, and Quality. It is ranked #104 out of the 146 stocks in the Medical – Devices & Equipment industry. The industry is rated D.
To see the additional POWR Ratings for Value and Stability for SIEN, click here.
Lemonade, Inc. (LMND)
LMND operates as a provider of various insurance products in the United States and Europe. The company’s insurance products include stolen or damaged property and personal liability that protects customers if they are responsible for an accident or damage to another person or their property. It has a short float of 27.16%.
On August 1, LMND announced the close of its divestiture of Metromile’s Enterprise Business Solutions (EBS) to digital insurance platform EIS. The divestiture of newly-acquired Metromile’s SaaS claims automation and fraud detection platform might not benefit the company.
For the fiscal second quarter ended June 30, LMND’s net loss increased 22.1% year-over-year to $67.90 million. Net loss per share attributable to common stockholders rose 22.2% from the prior-year quarter to $1.10. Adjusted EBITDA declined 24.5% from the same period the prior year to a negative $50.30 million.
The consensus EPS estimate of a negative $1.38 for the quarter ending September 2022 indicates a 27.8% year-over-year decrease.
The stock has declined 57% over the past year to close its last trading session at $29.43. However, LMND has been up 49.6% over the past month.
LMND has an overall F rating, equating to a Strong Sell in our proprietary rating system. The stock has a Value grade of F and a Growth, Stability, and Quality grade of D. In the 55-stock Insurance – Property & Casualty industry, it is ranked #54.
Click here to see the additional POWR Ratings for Momentum and Sentiment for LMND.
Stoke Therapeutics, Inc. (STOK)
STOK is an early-stage biopharmaceutical company that develops novel antisense oligonucleotide (ASO) medicines to treat the underlying causes of severe genetic diseases. Its lead clinical candidates are STK-001 and STK-002. STOK has a 14.68% short float.
For the fiscal second quarter ended June 30, STOK’s loss from operations increased 14.6% year-over-year to $25.24 million. Net loss and net loss per share stood at $24.65 million and $0.63, up 12.2% and 5% from the prior-year period.
Street revenue estimate for the fiscal year 2023 of $10.37 million reflects a decrease of 5.5% from the prior year.
The stock has gained 26.4% over the past month but declined 20.5% year-to-date to close its last trading session at $19.08.
STOK's overall D rating translates to Sell in our POWR Ratings system. It is ranked #217 out of 402 stocks in the Biotech industry. The industry is rated F.
In addition to the POWR Rating grades we’ve stated above, one can see STOK ratings for Growth, Value, Stability, and Sentiment here.
WE shares were trading at $5.11 per share on Thursday morning, down $0.14 (-2.67%). Year-to-date, WE has declined -40.58%, versus a -9.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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