AMC Entertainment (AMC -1.24%), SNDL (SNDL -3.24%), Netflix (NFLX -1.80%), Editas Medicine (EDIT -1.63%), and Tilray Brands (TLRY -3.38%) are some of the more popular stocks among retail investors. With the exception of Editas Medicine, all of them appear on the Top 100 most popular list among users of the Robinhood Markets trading platform. Editas has gotten a lot of attention from growth investors because of the possibilities of its CRISPR-editing therapies.
Being popular is not the same as being fundamentally sound, though. Netflix's shares are down only 4% over the past year, but the other four stocks are all down more than 50% over the past 12 months. That's because all five companies face challenges that make their stocks dangerous choices. Here's why investors may be interested in these five stocks and some reasons why maybe they shouldn't be.
1. The sun may be setting on SNDL
Bull-market case: Its recent acquisitions should fuel increased revenue. SNDL, formerly known as Sundial Growers, reported a record Canadian $230.5 million in third-quarter revenue, up 1,505% year over year. The reasons given for the increase were the company's purchase of Nova Cannabis and Value Buds. The company just spent CA$138 million to buy Valens, anticipating the deal will make it a leader in Canadian cannabis manufacturing.
Reason No. 1 to stay away: The stock already had one reverse stock split back in July. Now trading at around $1.53 a share and down more than 72% over the past year, it could face another reverse split soon, devaluing the stock. Reason No. 2 to stay away: Increased losses. SNDL reported a loss of CA$74 million in the second quarter of 2022, 41% more than it lost in the same period last year. Reason No. 3 to stay away: Declining sales in Canada. In the last quarter, the Canadian government reported that through March, there were 15.97 million units sold of packaged medical and non-medical cannabis, down 4% from the prior quarter.
2. Editas: Too little, too late
Bull-market case: Editas is a player in the most exciting growth trend in healthcare right now: gene-editing therapies. The company specializes in CRISPR Cas9 and CRISPR Cas12a genome editing and has a promising therapy, EDIT-301, to treat the rare blood disorders transfusion-dependent beta-thalassemia (TBT) and sickle cell disease (SCD).
Reason No. 1 to stay away: Poor cash position. At the end of 2022, the company had $437 million in cash, and after losing $220.4 million last year, it could run out of cash in less than two years. That doesn't give it much leeway to fund research and development and potential marketing expenses if EDIT-301 is approved. Reason No. 2 to stay away: EDIT-301 is in early-stage clinical trials, so it won't come to market before Vertex Pharmaceuticals and CRISPR Therapeutics' own TBT and SCD gene-editing therapy, exa-cel, which has already completed its rolling biologics license applications for the therapy and could be approved as early as late this year by the FDA. Reason No. 3 to stay away: Editas' pipeline is limited, other than EDIT-301. Its rare eye disease therapy EDIT-101 just had its trial to treat Leber congenital amaurosis 10 halted last year, and aside from that, the company has no named therapies in clinical trials.
3. Netflix: Stay tuned for results
Bull-market case: The company is in the midst of a turnaround, thanks to a crackdown on password sharing for account users, as well as the introduction of a $6.95-per-month ad-based service, which it began in November.
Reason No. 1 to stay away: The crackdown on password sharing will accelerate its slowed pace of increasing paid subscribers. The company reported 231 million paid subscribers in 2022, up 4% year over year, but the increase is down from the 8.9% growth it saw in the same period a year ago. Reason No. 2 to stay away: Declining earnings. The company reported annual earnings per share (EPS) of $9.24 in 2022, down from $11.24 in the same period in 2021. In the fourth quarter, EPS was $0.12, compared to $1.33 in the fourth quarter of 2021. The quarterly EPS was the worst result for Netflix since 2016. Reason No. 3 to stay away: There's a lot more competition among streaming services, cutting into Netflix's margins. To stand out, it has to do more original programming, but that's expensive.
4. AMC Entertainment: Is the show over?
Bull-market case: The No. 1 owner of movie theaters in the U.S., with 950 theaters and 10,500 screens, is on the rebound after COVID-19 restrictions decimated business the past couple of years. Yearly revenue, EPS, and attendance numbers were up in 2022 compared to 2021. Reason No. 1 to stay away: The "recovery" bump came and went for this meme stock. While yearly numbers were up, quarterly numbers told a different story. The company reported fourth-quarter revenue of $991 million, down 15.4% year over year, an EPS loss of $0.26, compared to a loss of $0.13 in the same period a year ago, and total attendance of 49.58 million, down 16.9% year over year. The problem for AMC and other movie companies is that the trend toward watching films in theaters has been sliding for a long time, thanks to more options for in-home viewing. Reason No. 2 to stay away: Stock dilution isn't a great solution. Its meme-stock popularity allowed the company the opportunity to sell additional stock regularly to finance operations. On April 2, the company announced that, by agreement, holders of AMC common stock would get one share for every 7.5 shares they hold in a reverse stock split. Reason No. 3 to stay away: Too much debt. AMC Entertainment had, as of the fourth quarter, $4.9 billion in net debt. It refinanced some of that to lower rates, but increased interest rates limit how much the company is able to cut down on the principal of its debt.
5. Tilray is running low on cash
Bull-market case: The Canadian cannabis retailer branched out into owning U.S. alcohol companies, diversifying its revenue and helping pave the way for an entry into the U.S. cannabis market.
Reason No. 1 to stay away: Tilray's financials continue to disappoint, and that's not even taking into account the debt it is taking on by acquiring Hexo. Tilray just reported third-quarter earnings for fiscal 2022 on April 10, and the company's revenue was down 4% year over year to $145.6 million. It reported a loss of $1.91 in EPS, compared to $0.09 in EPS in the same quarter a year ago. Reason No. 2 to stay away: It's stretched too thin. The company's brewery and distillery interests in the U.S. are taking the focus off the company's cannabis sales, which have been lacking. Reason No. 3 to stay away: The company is facing shareholder lawsuits that claim it misled investors by overstating its inventory and gross margins.
