The Reddit community, aka the WallStreetBets (WSB), is known for taking bets on heavily shorted companies and squeezing out short-selling institutional investors. The way GameStop Corp. (GME) and AMC Entertainment Holdings, Inc.’s (AMC) share prices have skyrocketed this year fits perfectly with Redditors’ motto: “To the moon.” According to Ortex data, short-sellers have gained $1.10 billion on their bets against AMC since December, and GME short-sellers have made $330 million since the start of the month.

But several stocks discussed on the forum do not have high growth prospects or strong fundamentals. Rather, WSBs usually make bets on heavily shorted companies, and their share prices surge based on investors’ optimism. However, betting on stocks whose companies lack solid fundamentals or good growth prospects can be highly risky, especially when the euphoria around them ceases. Stocks or “stonks” (as they are referred to on the WSB platform) have often fallen massively intraday, spelling significant losses by retail investors.

Given this backdrop, we think it could be wise to avoid WSBs stocks  Lucid Group, Inc. (LCID), Carnival Corporation & plc (CCL), Peloton Interactive, Inc. (PTON) and C3.ai, Inc. (AI). Their valuations look stretched at their current price levels.

Lucid Group, Inc. (LCID)

LCID in Newark, Calif., designs, engineers, and builds EVs, electric powertrains, and battery systems. As of June 30, 2021, the company had eight retail studios in the U.S. Its offerings include Air Dream Edition, Air Grand Touring, Air Touring, and Air Pure. It has received 45 mentions in the WSBs over the past 24 hours.

Several law firms have recently launched investigations against LCID on potential securities law violations. The investigations seek to ascertain if the company issued false and/or misleading statements and/or failed to disclose information pertinent to investors.

For its fiscal third quarter, ended September 30, 2021, LCID’s revenue decreased 30.5% year-over-year to $0.23 million. The company’s adjusted EBITDA fell 55.1% year-over-year to $224.96 million, while its operating expenses came in at $493.96 million, up 205.2% year-over-year.

In terms of forward EV/S and P/S, LCID’s respective 677.62x and 729.47x are higher than the 1.46x and 1.20x industry averages. Furthermore, its 14.39x forward P/B is 307.7% higher than the 3.53x industry average. Analysts expect LCID’s EPS to remain negative this year and next year. Over the past month, the stock has declined  6.9% in price to close yesterday’s trading session at $40.87.

LCID’s bleak prospects are reflected in its POWR Ratings. According to our rating system, it has an overall F rating, which translates to Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has an F grade for Value, Stability, Sentiment, and Quality. It is ranked #59 out of 67 stocks in the F-rated Auto & Vehicle Manufacturers. Also, click here to see the other ratings of LCID (Growth and Momentum).

Click here to checkout our Electric Vehicle Industry Report for 2021

Carnival Corporation  (CCL)

Miami, Fla.-based CCL is a leisure travel company that operates in North America, Australia, Europe, and Asia. Its portfolio consists of Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises, Costa Cruises, AIDA Cruises, P&O Cruises, and Cunard. It has received one mention in the WSBs over the past 24 hours.

CCL’s adjusted net loss for its fiscal third quarter, ended August 31, 2021, increased 16.9% year-over-year to $1.98 billion. The company’s operating costs and expenses increased 10.1% year-over-year to $2.60 billion. And its selling and administrative expenses increased 61% year-over-year to $425 million.

In terms of forward EV/S and P/S, CCL’s respective 21.37x and 9.59x are higher than the 1.46x and 1.20x industry averages. Analysts expect CCL’s EPS to remain negative this year and next. The stock has declined  36.8% in price over the past six months to close yesterday’s trading session at $18.15.

CCL’s POWR Ratings reflect these weak prospects. According to our proprietary rating system, it has an overall F rating, which equates to a Strong Sell.

It has an F grade for Value, Stability, Sentiment, and Quality. Within the F-rated Travel Cruises industry, it is ranked last. To see the additional ratings of CCL for Growth and Momentum, click here.

Peloton Interactive, Inc. (PTON)

PTON in New York City provides a connected, technology-enabled interactive fitness platform. The company offers services that include instructor-led boutique classes for its customers. Also, its product portfolio includes Peloton Bike, Peloton Bike+, Tread and Tread+, bike mat, heart rate monitor, and dumbbells. It has received 20 mentions in the WSBs over the past 24 hours.

Several law firms have launched investigations into PTON on potential security law violations. It is alleged that the company falsely assured investors that its positive results and growth would continue after the pandemic.

For its fiscal first quarter, ended September 30, 2021, PTON’s operating expenses increased 139.5% year-over-year to $622.40 million. The company’s net loss came in at $376 million, compared to a net income of $69.30 million in the year-ago period. And its EPS decreased 725% year-over-year to $1.25.

In terms of forward EV/S and P/S, PTON’s respective 2.96x and 3.01x are higher than the 1.46x and 1.20x industry averages. Moreover, its 10.07x forward P/B is 185.2% higher than the 3.53x industry average. For its fiscal 2022, PTON’s EPS is expected to decrease 820% year-over-year to $2.76. The stock has declined  74.1% in price year-to-date to close yesterday’s trading session at $39.26.

PTON’s weak fundamentals are reflected in its POWR Ratings. According to our rating system, it has an overall F rating, which translates to Strong Sell. It has an F grade for Growth, Stability, Sentiment, and Quality and a D grade for Value.

In the D-rated Consumer Goods industry, it is ranked #70 out of 71 stocks. To see PTON’s grade for Momentum, click here.

C3.ai, Inc. (AI)

AI in Redwood City, Calif., is an enterprise artificial intelligence company that provides software-as-a-service (SaaS) applications that enable the deployment of enterprise-scale AI applications. The company offers two families of software solutions: the C3 AI Suite and the C3 AI applications. It serves the oil & gas, financial services, defense, healthcare, and telecommunications industries. It has received 61 mentions in the WSBs over the past 24 hours.

AI’s non-GAAP net loss for its fiscal second quarter, ended October 31, 2021, increased 142.3% year-over-year to $23.61 million. The company’s operating expenses increased 114% year-over-year to $97.96 million. And its non-GAAP loss from operations came in at $22.55 million, up 142% year-over-year.

In terms of forward EV/S and P/S, AI’s respective 9.90x and 13.64x are higher than the 4.13x and 4.03x industry averages. Analysts expect AI’s EPS for its fiscal year 2022 to decrease 177.1% year-over-year to $0.97. The stock has declined 77.5% in price year-to-date to close yesterday’s trading session at $31.18.

AI’s POWR Ratings reflect these bleak prospects. According to our proprietary rating system, it has an overall F rating, which equates to a Strong Sell.

It has a D grade for Growth, Value, Stability, Sentiment, and Quality. Within the D-rated Technology – Services industry, it is ranked #74 out of 75 stocks. Click here to see AI’s rating for Momentum.

Click here to check out our Software Industry Report for 2021

LCID shares fell $0.73 (-1.79%) in premarket trading Wednesday. Year-to-date, LCID has gained 302.90%, versus a 25.12% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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