Since the start of 2021, retail traders on social media platform Reddit have targeted stocks with a short interest ratio to initiate a short squeeze resulting in a drastic increase in share prices. Several fundamentally weak companies were part of the meme stock rally that include BlackBerry (TSX:BB)(NYSE:BB) and AMC Entertainment (NYSE:AMC).
Let’s see which one should be on your buying radar right now.
AMC Entertainment stock is up 2,350% in 2021
AMC Entertainment has taken investors on a wild ride in the last year. The COVID-19 pandemic decimated the company as economic lockdowns were imposed all over the world. AMC had to raise capital in order to stay afloat. In 2021, AMC stock is up a monstrous 2,350% and more than doubled in June after its most recent short squeeze.
In short, AMC stock fell from US$7.46 in February 2021 to US$2.33 in January 2021 and is currently trading at US$50 at writing.
According to company CEO Adam Aron, around 80% of AMC shareholders are retail traders and it is now looking to tap into this investor base by offering shareholders incentives to support its on-demand streaming vertical.
However, the company has also raised US$2 billion in equity and debt capital this year which will be used to acquire other locations and expand its footprint. In Q1 of 2021, AMC reported a negative free cash flow of US$325 million and is forecast to narrow its loss from US$39.15 per share in 2020 to US$3.16 per share in 2021 and US$0.81 in 2022. It is also expected to increase sales from US$1.24 billion in 2020 to US$4.8 billion in 2022.
But these growth rates do not support AMC’s market cap of US$26 billion given its debt balance of US$11 billion and a cash balance of just US$813 million.
BlackBerry disappointed investors in the recent quarter
In its fiscal first quarter of fiscal 2022, which ended in May, BlackBerry sales were down 15.5% year over year at US$174 million. The company attributed its drop in sales to ongoing negotiations to sell an important part of its patent portfolio. However, investors should note that sales from its cybersecurity business were down 10% year over year at US$107 million.
The enterprise cybersecurity space is growing at a rapid pace which suggests BlackBerry is losing market share at an alarming rate.
This decline was offset by strong sales in BlackBerry’s IoT (internet of things) segment that includes its QNX product. In Q1, IoT sales were up 48.3% year over year at US$43 million accounting for a quarter of total revenue. According to a report from Strategy Analytics, QNX software is now installed in 195 million vehicles.
Despite its lackluster results, BlackBerry stock is up 79% year to date and is valued at a market cap of US$6.83 billion. However, analysts expect its sales to fall by 15% to US$781.5 million while its forecast to report a loss of US$0.14 per share in fiscal 2022, compared to earnings of US$0.18 per share in 2021.
BlackBerry will have to gain traction in its cybersecurity business and improve market share given the business accounts for 62% of sales. Its expertise in enterprise security can be leveraged to expand its suite of IoT solutions as well, making it an attractive stock if BlackBerry can stage a turnaround.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends BlackBerry.