From Pump to Dump: 3 Meme Stocks Headed for a Massive Crash

Stocks to sell

Meme stocks are some of the most dangerous investments to make right now. In my view, now may be a good time to sell many top meme stocks that have gone on big runs. Of course, investors can always put some “fun money” into these stocks as high-risk gambles. However, I would not recommend chasing the current meme stock rally. Most meme stocks have legacy underlying businesses that are bleeding cash and have negative growth. These companies are unlikely to provide long-term returns. In fact, they’re more likely to dilute investors toward oblivion.

The recent roaring kitty-led hype cycle around many meme stocks has led to a sharp rally over the past few months. Some stocks have seen incredible gains, so I think it is the perfect time to trim positions, for those holding these names. Of course, the hype could continue. But I think most of the hype is likely dead, and will continue to die down in the coming months.

GameStop (GME)

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GameStop (NYSE:GME) operates a chain of video game and entertainment stores. The company’s latest earnings release paints a grim picture for this meme stock darling. I’ve been skeptical about the GameStop craze since its inception. Speculators, flush with stimulus checks back in 2021 (and the likes of Roaring Kitty and others prompting speculators to consider certain stocks) led to unsustainable valuations which proved to be too good to be true.

Yes, GME stock is up an eye-popping 130% since the start of May, but it still hasn’t managed to overtake its previous high due to excessive share dilution. While the retail trading frenzy has allowed GameStop to raise a boatload of cash, I believe now is the perfect time to take profits and run for the hills.

GameStop’s financials are simply too poor to justify its premium. The company is also closing many more stores than it is opening.

Net sales plunged from $1.237 billion in Q1 2023 to a mere $882 million in Q1 2024. The company also remains deeply unprofitable, posting a net loss of $32.3 million on this revenue. Trading at an absurd 2.5-times forward sales, GameStop’s valuation is completely detached from reality, given its lack of growth and widening losses. The cash raised from the meme stock rally may provide some temporary relief. But throwing money at a sinking ship is never a wise investment strategy. Further pumps will also likely be met with even more dilution. As such, I think it is one of the top meme stocks to sell right now.

AMC Entertainment (AMC)

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AMC Entertainment (NYSE:AMC) is a massive movie theater chain operator, with a significant following. However, I believe this legacy business model is destined for decline. In its first quarter, AMC managed to broadly maintain revenues despite a drop in box office sales. However, I don’t see this as a sustainable trend, given the relentless rise of streaming competitors.

The pandemic has accelerated shifts in consumer behavior, with younger generations heavily favoring online entertainment options. Some studios are already experimenting with simultaneous streaming and theatrical releases. This could rapidly erode the viability of cinemas if it becomes the norm.

AMC has improved its efficiency, though. Plus, higher per-patron revenues are commendable. That said, I view these tailwinds negatively, as I think they’re just prolonging the inevitable. The company may survive in the near term as interest rates stabilize. But I believe AMC has very limited long-term growth potential in the face of digital disruption.

As streaming services become ever more dominant, physical movie-going will likely continue to dwindle. In my view, AMC is another meme stock that investors should consider selling before this small ongoing pump turns into a painful dump.

BlackBerry (BB)

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BlackBerry (NYSE:BB) provides cybersecurity solutions and Internet of Things (IoT) software. Indeed, while the days of BBM and “CrackBerries” are long gone, the company recently delivered a solid revenue beat this quarter, with both its IoT and cybersecurity divisions exceeding expectations. However, I believe this momentary uptick is unlikely to lead to a genuine turnaround for the struggling legacy tech player.

While BlackBerry achieved its third straight quarter of improved cash flow and narrowed losses, the bar was set exceedingly low, given the company’s multi-year decline. BlackBerry’s $144 million in revenue still represents a staggering 61.4% plunge compared to the prior year. I’m not convinced that eking out a modest revenue beat against the backdrop of such a dramatic collapse should be cheered.

CEO John Giamatteo claims BlackBerry’s strategy is working, but where’s the proof? The company continues to bleed red ink with a 3 cent per share loss, and its vaunted IoT business saw a sequential drop in development seat revenue. Unless BlackBerry stems its chronic customer attrition and returns to profitability soon, this meme-propelled dead cat bounce will likely end in tears for retail bulls. In my view, BB stock is definitely one of the top meme stocks to sell right now.

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 Publishing Guidelines.

Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.

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