Meme stocks have been awkward investments in this bear market. Take live tv streaming company fuboTV (FUBO -1.58%), for example. The stock is down a whopping 93% from its peak. But the stock has recently shown a pulse, soaring 52% in the last month alone.
Is optimism finally returning to the market? Will fuboTV finally begin its stock price rehabilitation journey? Maybe, but that’s why investors should be careful with fuboTV.
Is a short squeeze coming?
It’s an old cliche that the stock market boils down to fear and greed, but there’s some truth to that adage. Sometimes the pendulum swings too far in one direction; You can see below that short sellers are piling up at fuboTV, shorting nearly 30% of the stock’s outstanding shares. These must eventually be bought back in order for short sellers to close their positions.
Shorts jumped on fuboTV during a euphoric market in late 2020-early 2021, and it worked as the market peaked and started to cool. But this time it might not go so well.
The stock took a beating and lost most of its market value. Market sentiment has recently improved noticeably. CNN’s Indicator of fear and greed shows that investors have moved from fearful to neutral, and the S&P500 recently surpassed its 125-day moving average, a sign of potentially positive market momentum.
Short sellers could be caught with their hands in the metaphorical cookie jar if this is the start of a broader market recovery from last year’s lows. AND short press could occur when too many short sellers try to buy shares to close their position.
The management moves
The streaming company has grown successfully, but business is bleeding out, which is a dangerous thing in a bear market when raising new funds can be challenging. The company’s fragile finances likely prompted short sellers to jump on the stock, as they have.
The company has about a year before it runs out of cash based on its deficit Free cash flow about the past year and its current cash balance:
Fortunately, management has recognized this and is acting accordingly. In its earnings announcement for the second quarterthe company said it is seeking a partner for its sports betting segment rather than doing it alone, which could help launch the service faster and cost less money.
Second, fuboTV signed a content deal with an entertainment company owned by Ryan Reynolds, which will provide it with unwritten television content for the platform and ad sales for the channel.
The company has a lot of work ahead of it. Its global spend accounted for 152% of revenue in the second quarter, but these moves are at least a step in the right direction. Investors will want to see how much they can control their costs as profitability becomes increasingly necessary to survive over the long term.
Treat fuboTV as it is
It’s important to have the right mindset when approaching a stock like fuboTV. Increased short seller activity could result in a short squeeze if the market recovers. However, buying a stock for the possibility of a speculative like a short squeeze is not an investment; it is gambling.
Meme stocks like fuboTV are likely to remain highly volatile and could give back much of those gains if the company shows signs of financial distress in the coming months or quarters. So if you buy fuboTV you should consider it as a speculative position, a tiny part of a diversified portfolio built on a foundation of blue chip stocks with solid fundamentals.