As an early stage biotech devoted to developing psychedelic medicines, Mind Medicine (MNMD -6.25%) is a risk lover's paradise encapsulated into a stock. The company won't have any therapies on the market for quite some time, assuming it can ever successfully develop them at all. Buying shares is so risky and speculative that it's similar to buying a lottery ticket -- and that's why it could be a candidate to become a meme stock.
In fact, there are several reasons why Mind Medicine has a shot at becoming a meme-driven roller-coaster ride any day now. If you already have an adequately diversified portfolio and are willing to consider a meme stock -- with all the oversized risks that may entail -- read on.
1. A nod from one meme stock investor
Mind Medicine just received a nod of approval from one of 2022's ascendant meme stock investors. Jake Freeman is a 20-year-old investor known for making a shocking sum of around $110 million on his recent trade of Bed Bath & Beyond.
In an interview conducted by the Financial Times on Aug. 18, he revealed that he also has a new position in Mind Medicine. Between the shares Jake holds via his uncle, Dr. Scott Freeman, at Freeman Capital Management, and the shares that the elder Freeman holds directly, the Freemans now have a stake of around 5.6% in the company. The stock soared when that stake was announced, though it gave up most of its gains a week later.
Dr. Freeman is also a former pharmaceutical executive. On Aug. 11, Freeman Capital Management wrote to the board of directors to request a seat on the board for Dr. Freeman, while also requesting a renewed development focus on the core drugs in the pipeline rather than ancillary ones. Whether attaining those goals would be a long-term positive for the company is still up in the air.
2. Its online community is loyal and growing
Meme stocks usually have their price movements driven by massive buying activity that's fueled by small-time investors who are egged on by a steady flow of topical and silly memes about the company. For a meme stock to excite investors, there first needs to be an engaged community of shareholders.
And while Mind Medicine isn't yet a favorite on meme trader haunts like Reddit's Wall Street Bets board, it does have an active online presence that has grown considerably over the last couple of years.
Nonetheless, there's still one key ingredient missing: actual memes for the stock. Online investors often like to create humorous images, videos, or pieces of text related to a stock. So far, online communities appear to be more focused on substantive discussions of the company. If that changes, it could mean that the company has a more powerful following.
3. Could there be a short squeeze?
It could be said that last year was when the concept of short squeezes broke through into public consciousness. The stock market saw individual meme traders clashing with institutional short sellers over such stocks as AMC Entertainment -- with the small investors sometimes coming out on top.
Now, Mind Medicine could be the next battleground, at least according to some smaller investors on the popular discussion boards like Reddit. Some believe a short squeeze could be in the works, whereby short sellers might be forced to buy shares to cover their positions.
The only issue is that the stock's short interest is around 4% of its floating shares -- which is probably not enough to trigger a short squeeze. Typically, stocks need short interest in excess of 20% to be a candidate for a short squeeze. While it's possible that short sellers have been piling in more than before, it's equally likely that the narrative about an impending squeeze is a bit overblown for the moment.
Still, for fad-driven stocks, perception can matter a lot more than reality, so the idea of a looming short squeeze is still a point in Mind Medicine's favor when it comes to becoming a monster meme stock.
But that doesn't mean it's the right stock for most investors. As an early stage biotech, Mind Medicine is a speculative bet under the best of conditions. Furthermore, betting on it becoming a meme stock and experiencing a wild run-up isn't a safe strategy, to say the least. With that said, if you still decide to invest, do so gingerly -- and don't discount the chance of losing your money if you do.