Meme stocks emerged as a pandemic-induced diversion from traditional investing practices, with the zealous involvement of millennials as retail traders. Several social media forums helped retail traders bet against hedge funds, causing a short squeeze in some fundamentally weak stocks. However, with most meme stocks failing to maintain the price levels they achieved, the meme craze is gradually fading. Another reason for the declining interest in meme stocks is the revival of cryptocurrencies. Retail traders’ attention is shifting toward potentially lucrative opportunities offered by cryptocurrencies. So, while there are still new meme names on social media forums, the most popular candidates in this space are losing focus.

According to the alternative data provider Quiver Quantitative, the average number of daily comments on Reddit’s WallStreetBets forum last month was only half of its last year’s value. Furthermore, the number of active users and funded accounts on a few financial platforms that allow investors to invest in stocks saw a dip in the third quarter.

So, we think it could be wise to avoid meme stocks Robinhood Markets, Inc. (HOOD), GameStop Corp. (GME), and IronNet, Inc. (IRNT) because of their weak growth prospects and bleak financials.

Robinhood Markets, Inc. (HOOD)

HOOD is a financial service platform that allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies. The company's platform offers trading in the United States listed stocks and ETFs and related options and American depositary receipts (ADRs); cryptocurrency trading through its subsidiary, Robinhood Crypto, LLC (RHC). In addition, it also offers various learning and education solutions.

Last month, the law firm of Kessler Topaz Meltzer & Check, LLP began investigating potential violations of federal securities laws on behalf of investors of HOOD. Allegations have been made against HOOD based on the company’s initial public offering ("IPO") in July, in which it issued 55 million shares at $38 per share. Last month, HOOD announced its third quarter’s report in which its revenue fell short of Wall Street estimates, with crypto transaction revenue totaling $51 million, down 78% from the previous quarter. Following this announcement, Robinhood's shares declined to 10% below its IPO price of $38. We think this case could negatively impact HOOD’s customers' trust.

HOOD’s total operating expenses came in at $280.48 million in the third quarter, ended September 30, 2021. The company’s total net revenues decreased 26.1% year-over-year to $269.53 million. Its net loss came in at $10.66 million. In addition, the company’s loss per share amounted to $0.05 for the period.

HOOD’s EPS is expected to remain negative in the current year. Its stock has lost 18.9% in price over the past month.

HOOD’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

Also, the stock has an F grade for Value, Sentiment, and Growth. We’ve also graded HOOD for Quality, Momentum, and Stability. Click here to access all of HOOD’s ratings. HOOD is ranked #154 of the 160 stocks in the D-rated Software - Application industry.

Click here to check out our Software Industry Report for 2021

GameStop Corp. (GME)

GME is a specialty retailer that provides games, entertainment products, and technology. The company offers a range of used video gaming consoles, a variety of POP vinyl figures, collectibles, board games, and other consumer electronics and video game titles in both physical and digital formats. GME also offers Game Informer and operates its stores and e-commerce sites under the GameStop, EB Games, and other collectible stores.

During the second quarter, ended July 31, 2021, GME’s net sales increased 25.6% year-over-year to $1.18 billion. However, its operating loss came in at $58 million. Its net loss amounted to $61.6 million. Also, the company’s loss per share came in at $0.85 for the period.

Analysts expect GME’s revenue to decrease 2.3% year-over-year to $5.54 billion for its fiscal year 2023. The company’s EPS is estimated to decline 20.9% in the next quarter. Its stock has declined 43.5% in price over the past nine months.

GME’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system. Also, the stock has an F grade for Value and Stability, and a D grade for Sentiment.

In addition to the POWR Rating grades I’ve just highlighted, one can see GME’s ratings for Growth, Quality, and Momentum here. GME is ranked #40 of 42 stocks in the B-rated Specialty Retailers industry.

IronNet, Inc. (IRNT)

Incorporated in 2014, IRNT is a cyber security company that designs and develops solutions for cyber-attacks. The company’s offer IronDefense, which detects advanced threats, and IronDome, which delivers threat campaigns targeting participant industry peers. Also, it serves energy and utilities, financial services, healthcare, life sciences, defense, and public sector industries.

For the fiscal second quarter, ended July 31, 2021, IRNT’s revenue decreased 22.8% year-over-year to $6.1 million. Its operating loss increased 19.7% from its year-ago value to $17 million. The company’s net loss grew 20.3% from the prior-year quarter to $17.2 million.

The company’s EPS is expected to remain negative for the next year. IRNT’s stock price has declined 38.1% in price over the past month.

It’s no surprise that IRNT has an overall F rating, which equates to a Strong Sell in our POWR Rating system. Also, the stock has an F grade for Value and Sentiment, and a D for Growth.

Click here to see the additional POWR Ratings for IRNT (Momentum, Stability, and Quality). IRNT is ranked last of 28 stocks in the F-rated Software – Security industry.

Click here to checkout our Cybersecurity Industry Report for 2021

HOOD shares rose $0.23 (+0.66%) in premarket trading Monday. Year-to-date, HOOD has gained 1.41%, versus a 24.35% rise in the benchmark S&P 500 index during the same period.

Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.

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