Investing is an activity that demands prudence and careful consideration. Despite the appealing allure of high returns, not all stocks that seem attractive at face value are indeed truly valuable or even sustainable in the long run. In particular, certain risky stocks may appear enticing due to their rapid growth or hype in the market, but the reality of their underlying stability may be different.
We witnessed this reality in stark relief last year when many overhyped, risky stocks, which had been riding the wave of excessive optimism and speculation, experienced a sobering reality check.
Due to the run-up in the stock market, here are some bags you won’t want to be holding if things turn for the worst.
AMC Entertainment (AMC)
AMC Entertainment (NYSE:AMC), a high-risk meme stock, seeks to recover through equity expansion and a possible reverse stock split. With over $4.8 billion in debt, AMC faces a challenging path. Despite the gradual return of moviegoers, first-quarter sales lag 25% compared to pre-Covid levels. This makes it one of those risky stocks to avoid.
Streaming services and evolving consumer habits add to the complexity. While a comeback is feasible, AMC has faded from the meme stock scene. The stock has plunged over 50% in the past year, and further volatility is anticipated.
AMC continues to face challenges and is considered an unfavorable investment due to changing viewer preferences and declining prospects in the movie theater industry. AMC’s reported increase in first-quarter revenues can be misleading as it is mainly attributed to lingering effects of the pandemic rather than a true turnaround. A comparison of Q1 revenues to previous years reveals a decline, indicating that AMC is heading in the wrong direction.
Inexperienced traders can fall into a trap when stocks experience short-term increases within a long-term downtrend. QuantumScape (NYSE:QS) stock, in particular, is known for this pattern.
The recent jump in price was likely fueled by traders speculating on the Federal Reserve’s potential pause in interest rate hikes, rather than any notable developments from QuantumScape. The lack of significant announcements from QuantumScape adds to the unremarkable nature of the situation.
QuantumScape’s shareholders are left revisiting the company’s shareholder letter and investor presentation, as no significant updates have been provided. In the meantime, other companies are also advancing in the development of solid-state batteries, making QuantumScape’s wait-and-see approach less effective. Despite limited communication, QuantumScape has spent over $500 million on development, but without any mention of product sales or revenue in their first-quarter 2023 shareholder letter, profitability remains absent.
Solid Power (SLDP)
Solid Power (NASDAQ:SLDP), a Colorado-based energy storage company, focuses on solid-state batteries that utilize solid-state electrolytes instead of traditional liquid or gel electrolytes. With an aim to revolutionize the electric vehicle (EV) industry, Solid Power believes its batteries will outperform lithium batteries in terms of charging capacity and leakage resistance.
Despite the potential of Solid Power’s solid-state battery technology, it remains unproven, and lithium batteries continue to dominate the market. The company’s performance in the first quarter fell short of revenue expectations, indicating that significant growth may not occur in the second half of 2023. With SLDP stock receiving a low rating, the outlook for Solid Power is uncertain.
Solid Power is a penny stock with growth potential. It focuses on commercializing solid-state batteries that offer improved safety and effectiveness. While institutional investors are involved, their decisions can impact the stock’s price.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.