7 Reddit Stocks That Deserve to Go Bankrupt and Just May Do That

I know, I know. Hasn’t there been enough attention given to the new paradigm of investing brought on by the Reddit stocks? Maybe so. The only thing that’s surprising is how many people are surprised by it. What’s occurring in the market was predictable.

Millions of potential traders are staying at home and finding themselves with limited forms of entertainment. In the early days of the novel coronavirus pandemic, even live sports was on a hiatus. It’s not surprising that many individuals started eyeing the stock market as a place where they could find a release – and with commission-free trades – as a way to make a quick buck.

Plus they found kindred souls with the network of day traders who were already in the market. As the saying goes, what did you think was going to happen?

Well maybe not a short squeeze of the kind we saw, but there was certainly evidence that many of these traders were putting their money on stocks that were, shall we say, lacking on fundamentals.

The reality is that many inexpensive stocks, particularly those that fall in the category of penny stocks, are inexpensive for a reason. And it usually doesn’t take much digging to find out why.

Call them meme stocks, casino stocks, or Robinhood stocks. Whatever term you choose, here are seven Reddit stocks you should avoid out of concern that the company could go bankrupt:

  • GameStop (NYSE:GME)
  • Naked Brands (NASDAQ:NAKD)
  • Blue Apron (NYSE:APRN)
  • Casper Sleep (NYSE:CSPR)
  • AMC Entertainment Holdings (NYSE:AMC)
  • Sundial Growers (NASDAQ:SNDL)
  • Genius Brands (NASDAQ:GNUS)

Reddit Stocks: GameStop (GME)

Source: Northfoto / Shutterstock.com

The title of this article is about Reddit stocks that “deserve” to go bankrupt. It’s not about stocks that necessarily will do that. In the case of GameStop, it’s highly unlikely that the company will go bankrupt in the near future. It’s not that the company’s business model has changed. But the company now has an opportunity to raise money through a share sale that it would have never had without the short squeeze.

And spinning that forward, the elevated price for GME stock may buy the company time to attempt a pivot to a more successful business model. The company was sitting on just over $600 million in cash when it last reported earnings and the company is seeing growth in e-commerce.

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That being said, growth via reducing expenses and closing stores is not a formula for sustainable growth. GameStop was a troubled company before the pandemic, and it faces long odds to becoming a viable investment. Finally, consider that analysts give GameStop a consensus price target that is 40% lower than the stock was trading before the short squeeze.

Naked Brands (NAKD)

a man and woman wear plain white underclothes from Naked Brand (NAKD)

Source: Shutterstock

When I heard that Naked Brands was becoming one of the Reddit stocks, I’ll admit to laughing out loud. This is a troubled company that was on the verge of being delisted. However in this case, Naked Brands needs to give a cap tip to the Securities and Exchange Commission (SEC) for giving the company time to avoid having its stock delisted.

That gave some speculative investors an opportunity to make a quick trade. But I sent out the caution flag just a few weeks ago:

If that’s your jam, I’m not here to stop you. The simple fact is that staying listed does not end the problems for Naked Brands. It also needs to be said that the company’s problems are not new. The pandemic hasn’t helped.

NAKD stock did not go into the stratosphere so Naked Brands will probably have to stave off bankruptcy in another way, perhaps through a reverse merger.

Either way this is a company with declining sales in a market with loads of competition.

Reddit Stocks: Blue Apron (APRN)

Blue Apron Stock

Source: Roman Tiraspolsky / Shutterstock.com

Blue Apron was a pandemic winner. Millions of Americans were looking for a way to simplify and put some structure (and perhaps some caloric discipline) into their meal plans. Blue Apron and other meal kit services filled the bill. And it became one of the Reddit stocks when the stock jumped more than 50% in the middle of January despite no significant news.

APRN stock surged more than 600% at the onset of the pandemic as traders bid up the stock in anticipation of increasing revenue. Those gains have slowly eroded over the past year. The stock remains solidly above the penny-stock range. However there are some analysts that suggest it’s just a matter of time before Blue Apron will find itself in bankruptcy.

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The reason is simple enough. The market for meal kits was never as high as investors imagined. Not only does the company face competition from Amazon (NASDAQ:AMZN) but also from the likes of grocery store chains like Kroger (NYSE:KR). The company also faces competition from private meal kit companies.

Casper Sleep (CSPR)

Source: Shutterstock

Casper is one of the Reddit stocks on this list that may deserve to go bankrupt, but mostly because it probably should never have gone public. The company manufactures a range of what it terms “sleep-centric” products and is perhaps best known for its mattresses.

Don’t get me wrong, direct-to-consumer will have a growing importance in the global economy. And Casper seems to have a quality product. However, it lacks the market share to generate meaningful revenue. That’s not surprising. One year ago, the review site Goodbed.com cited at least 175 companies were competing with Casper in the “bed-in-a-box” category.

And that means that the company has to attempt to thread a difficult needle of becoming a profitable company with flat to shrinking revenue. The pandemic seems to have helped the company a bit. But I would imagine that the company’s products are somewhat of a one-off purchase. That means that CSPR stock will remain a troubled stock that investors should avoid.

Reddit Stocks: AMC Entertainment Holdings (AMC)

Neon sign of an AMC (AMC) theater

Source: rblfmr / Shutterstock.com

AMC Entertainment Holdings is in a similar position to GameStop. The company faces a difficult business model. There is a core audience that still wants the cinema experience. But many consumers were opting to stay home. In some cases, it was because of the home theater movement. Hey, when you’ve dropped that kind of money into home entertainment, there’s an economic argument for staying home.

And now when you layer the pandemic on top of it, the theater chain will face a tough road forward. In December, CNBC reported these sobering numbers. The company had almost $5 billion in debt before the pandemic. And the company will need at least $750 million of additional liquidity to fund its cash requirements through this year.

At the time, CNBC said bankruptcy might be the company’s best option and it’s hard to argue with that logic. AMC stock did briefly get caught up in the short-squeeze movement, but it has been short lived.  Maybe fundamentals do matter.

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Sundial Growers (SNDL)

marijuana stocks image of marijuana leaf on top of several one-hundred dollar bills

Source: Shutterstock

The saying timing is everything applies to the bullish and the bearish case for Sundial Growers. On the one hand, Sundial went public in 2019 and missed out on the cannabis stock bubble of 2018. On the other hand, SNDL stock is up, wait for it, 768% since Election Day. The only real reason is that there is growing hope that with the Democratic party in charge of both houses of Congress, cannabis will be legalized in the United States.

If that happens, Sundial may live to see another day. But I wrote about Sundial in January and I see the company as a takeover target more than anything else. The company focuses on the premium end of the market, and that may make it appealing to any number of companies looking to gain a foothold in the U.S. market.

However remember that legalization at the federal level is not a foregone conclusion. And without it, there seems to be little chance that Sundial will avoid bankruptcy.

Reddit Stocks: Genius Brands (GNUS)

An image of two young girls looking at a tablet and smiling while an adult reads in the background.

Source: Syda Productions/ShutterStock.com

A free streaming channel targeted at kids in the middle of a pandemic. What could be better? Well it turns out that Disney (NYSE:DIS) may have had something to say about that.

There are many problems with GNUS stock that support it trading as a penny stock. Perhaps the most obvious is that it has a marketing problem. It is attempting to pass itself off as an educational option with its Kartoon Channel. But it also recently announced that Sonic the Hedgehog and Pac-Man are part of its portfolio.

Plus, the larger problem is that despite the national headlines, a large number of children did go back to school and continue to be educated in person, particularly in the age group targeted by Genius Brands.

And as Larry Ramer wrote, the company is facing an entirely plausible legal challenge that it misled investors to the benefit of insiders. As investors have seen with companies like Luckin Coffee (OTCMKTS:LKNCY), that is not a situation easily overlooked by investors.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.

View more information: https://investorplace.com/2021/02/7-reddit-stocks-primed-for-bankruptcy/

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