In the last year, millions of millennial investors have made money hand over fist, as they took advantage of the ongoing volatility in equity markets. Online investing application Robinhood which is popular due to its commission-free trades gained over 3 million users last year. Further, the average age of users on this mobile app is just 31.
It is good to see retail investors allocating capital to equities, an asset class that has created massive wealth over several decades. However, it is also easy to get lost amid the chaos and the large number of options available for equity investors. The Robinhood leaderboard that provides us information about the most popular stocks among traders has several companies that are fundamentally weak and should be avoided for obvious reasons.
Here, we look at three such companies that should avoided by investors in 2021.
GameStop
GameStop (NYSE: GME) has been one of the most popular stocks in 2021 after a group of redditors were responsible in manipulating its stock price by almost 3,000%. Shares of GameStop rose from $17.25 at the start of the year to touch a record high of $483 in intra-day trading at the end of January 2021. GME stock is currently trading at a price of $101.74.
These investors collaborated to purchase GME stock and out-of-money calls that were heavily shorted. They successfully implemented a short-squeeze which garnered significant interest all over the world.
However, GameStop is still a company that remains fundamentally weak. It is a gaming retailer which has seen a massive decline in top-line over the last few years. The company now aims to lower expenses and shift towards an online model. However, it is likely to report its fourth consecutive year of net losses in 2020.
Aurora Cannabis
The cannabis sector is hugely popular among Robinhood investors. While this space is all-set to explode with widespread legalization of recreational marijuana all over the world, Canadian cannabis companies continue to grapple with a slew of structural issues that include lower than expected demand, mounting losses, dilution of shareholder wealth and million-dollar write-downs.
While Aurora Cannabis (NYSE: ACB) stock is up over 25% in 2021, its still trading 93% below its record highs. In the December quarter, the company reported an EBITDA loss of over CA$10 million. Though it was significantly lower than the EBITDA loss in the prior-year period, investors should note that the path to profitability remains elusive for one of the largest pot stocks in the world.
GoPro
The final stock on the list is consumer technology company GoPro (NASDAQ: GPRO). The stock has lost 76% in market value after it peaked in 2015. GoPro stock fell 19% on February 5 after it reported Q4 results a day prior.
While GoPro’s sales were up 28% in the December quarter on a sequential basis, it was below Wall Street estimates. Further, in a pandemic hit 2020, GoPro sales were down 25% year over year in 2020.
In Q4, GoPro’s sales stood at $44.4 million. Comparatively, the company lost $66.8 million in 2020. GoPro products are priced at a premium and the company is part of a niche category. This makes it difficult to gain traction in high-growth markets of Asia and Latin America.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
