It is always a good idea to be wary of volatile, high-risk stocks. When a stock is on a roller coaster, determining a reasonable price for it is much more difficult for those looking to invest. And many people who try holding such investments find their wild ups and downs difficult to stomach.
Three stocks that have been particularly volatile and that I think are extra risky to have in your portfolio now are GameStop (GME -4.22%), Sundial Growers (SNDL -1.35%), and Tilray (TLRY). If you're considering taking a chance on any of them, you will want to keep those investments on a short leash.
GameStop remains a crumbling business
GameStop shares have stabilized in recent weeks, and now sit in the $40 to $50 neighborhood. But investors shouldn't get too comfortable with that price range. That's still an extremely expensive level for this stock given the financial struggles of the video game retailer. With more and more people buying video games online and downloading them directly to their consoles and computers, GameStop's business model is only getting shakier.
The stock is still trading more than 1,000% higher than it was a year ago, and I don't think there's a justification for all of the continued bullishness. The company has incurred losses in three straight quarters, and its net loss over the last four reported quarters sits at $275 million.
In its Dec. 8 earnings release, the retailer reported net sales of just over $1 billion for the period ending Oct. 31. That was down 30.2% from the prior-year period. Same-store sales fell by 24.6%, and that was after factoring in e-commerce sales growth of 257%.
GameStop's business is in trouble, and its future is as uncertain as ever. Unless you're a high-stakes gambler, this is a stock you shouldn't be betting on as there is still lots of risk and it has plenty of room to fall. At the end of 2020, GameStop shares were trading at around $19. If they revert back to those levels, which is a very real possibility, that would be a loss of more than 40% from where they trade as of Feb. 18.
Sundial's still in the red
Sundial stock has no business trading at the levels where it is right now. At the end of 2020, it wasn't at $0.50 a share, but since then, it has more than quadrupled in price. And yet nothing has fundamentally changed with its business. The company didn't release a new earnings report with numbers that would give investors reason to be bullish, nor were there any significant developments that changed Sundial's outlook. The most notable recent news events regarding the company, in fact, were the two secondary stock offerings it made after that share price spike.
This is a company that has been struggling to generate consistent sales growth and to get out of the red. In each of the past eight quarters, Sundial has incurred a loss. And in only one of the past four periods were its net losses below 50 million Canadian dollars. Gross sales, meanwhile, have fluctuated within a range of CA$15.5 million and CA $24.3 million during that time.
Unless you're a speculator who's hoping that another company will acquire Sundial for a large premium, there's not a whole lot of reason to buy this pot stock. And now that speculators have driven the share price up, prospective buyers are likely to walk away from this now-overpriced target.
Tilray is too speculative
Of the stocks on this list, Tilray is the most investable one. Its merger with Aphria will make it the largest cannabis company in the world -- at least temporarily, in terms of pro forma sales. The companies expect the deal to close in the second quarter. Joining forces with the low-cost cannabis producer will help Tilray strengthen its bottom line, not to mention pad its overall sales, making the combined business a much stronger leader in the Canadian marijuana market.
But despite that, Tilray's stock could be dangerous to hold. At the end of last year, it was trading below $9 a share. Earlier this month it spiked as high as $67. Right now, it is hovering around the $30 mark. This suggests that it, too, has become a target of speculators and traders. Even after the recent drop in price, Tilray's shares are still up more than 280% just in 2021. Year to date, the Horizons Marijuana Life Sciences ETF has gained 88%.
The company did announce, just before its share price surge, that it had reached an agreement with Grow Pharma to distribute its products in the U.K. While that was positive news for Tilray, it was hardly a sufficient reason for the stock to skyrocket. In its press release, the company didn't offer any projections about what the deal might mean for its top or bottom lines. Although Tilray's stock has already fallen far from its recent peak, I won't be surprised to see it sink much further before the merger with Aphria closes.