What do you get when you mix a small-cap stock, Reddit and a sprinkle of hot non-fungible token (NFT) news? An explosion in Vinco Ventures’ (NASDAQ:BBIG) stock price. BBIG stock rallied 420% in August in about 10 days. This happens often in post-pandemic Wall Street. Retail investors have gone hog wild with excitement and in giant bursts.
These moves have very little to do with actual improvements in the fundamentals. They are spontaneous “super spikes” that start by a chase of hope or headlines. However, they end up being a short squeeze of sorts. Often, the perception is that Reddit is trying to stick it to hedge funds that short stocks.
The Action In BBIG Stock Is Dangerous
I’m not sure how long this phenomena will last. But, for now investors have to respect the price action. The sane approach for fundamental investors is to avoid it unless they are in-the-know. Therein lies my take-away today, which is to steer clear of BBIG stock for now. This extreme volatility is too unpredictable for most investors.
I would love to be aboard a super spike in a stock like this. However, unless the investors are in on the price attack, they are likely to be late to the party. What comes up this fast must also come back down. Often it is not a gentle ride back but a crash.
The August spike was not the first time BBIG had a super spike. It rallied more than 500% in January and even as far back as 2018. This last explosion out-did the priors and actually printed an all-time high value. Sadly BBIG stock is now 55% below that, as it retests prior pivot zones.
The $5 per share level has been in contention for quite a few months. This was where the stock failed in February, March and June. Finally, on Sept. 8, the bulls succeeded in taking it out. They have fallen right back to it at a high rate of speed. This puts into doubt whether they can actually slow down the descent this time.
While these super spikes appear to be easy money, they are not. This is not what qualifies as investing, not by a long shot. Heck this is not even trading because it involves what borderlines on cheating. I commend the Reddit gang for being able to pull it off. I’m a bit jealous.
But, in the end, I bet this loophole does not belong on the main field. Maybe the authorities should segregate and designate a special market super spike tickers. This would shield bystanders traders from suffering tremendous losses.
Show Me the Money
So far I have discussed nothing about the actual fundamentals of this company. With the world going digital, they are in the right spot with their marketing acumen there. Clearly they have a business albeit small, and shrinking.
Total revenues have declined sharply over the years. We can’t blame the pandemic, because that actually boosted online sales and businesses. Besides, the decline in revenues was already ongoing at least since 2015. Net income flipped negative three years ago, and they have not generated positive cash flow from operations since then.
My conclusion is that the story for BBIG stock is not obviously prosperous. I contend that there is more hype and hope than substance in the stock price. Current investors are nervous about risk in companies with bulletproof financials. Therefore, the last thing they should do is take risk on a stock this low down the quality echelon.
My opinion sounds like an insult to someone who is absolutely in love with BBIG stock. On the contrary — it is merely a statement of fact. The public financial reports offer proof that the business is deteriorating. Vinco will need to make an incredibly big u-turn to change that fact. Until then, this is a stock I suggest you avoid. Just watch it and applaud from the sidelines.
On the date of publication, Nicolas Chahine 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.
Nicolas Chahine is the managing director of SellSpreads.com.