In this article, we discuss the 10 Reddit stocks that flopped in 2021.
Retail investors have taken the stock market by storm this year, pouring hundreds of millions into equities and developing a brand of investing that has garnered a lot of debate in the finance world. The pandemic was the single most influential factor in pushing these traders towards the market. According to a survey by financial services firm Charles Schwab, 15% of active retail traders got their start at the market in 2020. Most of these traders use online brokerage applications like Robinhood to make trades.
Charles Schwab itself hosts over 30 million of these retail clients and has boosted assets to close to $7 trillion in this retail trading boom. Fidelity Investments, another brokerage, had over $8.8 trillion in customer assets in late 2020, up from $8.3 trillion in 2019, because of the influx of retail investors on the platform. Many retail investors use internet platforms like Reddit to exchange ideas. Since the short squeeze saga involving GameStop and AMC Entertainment in January, Reddit forums related to finance have gained in importance on Wall Street.
These retail investors like to invest in high-growth equities as they dream of getting rich quickly. However, so far this year, inflation concerns have dampened the hopes of a quick economic recovery from the virus, increasing interest in value plays as growth stocks undergo a correction. Some of the stocks presently feeling the heat of an economic slowdown include Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and PayPal Holdings, Inc. (NASDAQ:PYPL), among others discussed in detail below.
Our Methodology
These were picked based on the hype around the companies on different Reddit forums. The stocks that registered a year-to-date decline of at least 5% were preferred for the list.
The hedge fund sentiment around each stock was calculated using the data of 867 hedge funds tracked by Insider Monkey.
Photo by Tech Daily on Unsplash
Reddit Stocks that Flopped in 2021
10. Pacific Biosciences of California, Inc. (NASDAQ:PACB)
Number of Hedge Fund Holders: 27
Year-to-Date Decline in Share Price: 10%
Pacific Biosciences of California, Inc. (NASDAQ:PACB) markets sequencing systems that help solve complex genetic problems. The share price has fallen over the past few months as the company undergoes a major managerial overhaul and makes new acquisitions.
On October 14, investment advisory Cowen maintained a Market Perform rating on Pacific Biosciences of California, Inc. (NASDAQ:PACB) stock with a price target of $30. The company has a market cap of $5 billion and posted $78 million in revenue last year. The short interest on the stock is over 8%.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm ARK Investment Management is a leading shareholder in Pacific Biosciences of California, Inc. (NASDAQ:PACB) with 22 million shares worth more than $580 million.
Just like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and PayPal Holdings, Inc. (NASDAQ:PYPL), Pacific Biosciences of California, Inc. (NASDAQ:PACB) is one of the stocks affected by the recent shift in investor focus from growth to value options.
In its Q1 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Pacific Biosciences of California, Inc. (NASDAQ:PACB) was one of them. Here is what the fund said:
“Pacific Biosciences of California, Inc. provides long-read DNA sequencing systems to scientists conducting genetic analysis. Shares performed well for the quarter. We believe there is increasing excitement about the potential for its platform to move beyond research into clinical applications. The recently appointed CEO was previously Chief Commercial Officer at Illumina, and we think he is well qualified to commercially execute on Pacific Biosciences’ differentiated long-read platform.”
9. Canopy Growth Corporation (NASDAQ:CGC)
Number of Hedge Fund Holders: 17
Year-to-Date Decline in Share Price: 52%
Canopy Growth Corporation (NASDAQ:CGC) makes and sells cannabis products. Even though some lawmakers are pushing a bill for the legalization of marijuana, investment bank Barclays has predicted that Canadian companies like Canopy Growth will not be able to benefit from it.
Canopy Growth Corporation (NASDAQ:CGC) has failed to impress analysts with earnings results so far this year. Jefferies analyst Owen Bennett recently kept a Hold rating on the stock and lowered the price target to C$16.7 from C$25.3.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Renaissance Technologies is a leading shareholder in Canopy Growth Corporation (NASDAQ:CGC) with 1.9 million shares worth more than $26 million.
8. ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD)
Number of Hedge Fund Holders: 19
Year-to-Date Decline in Share Price: 64%
ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) is a biopharma firm that develops drugs for unmet medical needs. The firm has missed market estimates on earnings for two of the three quarters of the year so far. Pipeline drug updates have failed to impress as well.
ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) stock took a major hit earlier this year after regulatory authorities rejected an application by the company for the expansion of Nuplazid, a drug used for the treatment of dementia-related psychosis.
At the end of the third quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $908 million in ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD), down from 21 in the previous quarter worth $1.3 billion.
In its Q1 2021 investor letter, Alger, an asset management firm, highlighted a few stocks and ACADIA Pharmaceuticals Inc. (NASDAQ:ACAD) was one of them. Here is what the fund said:
“Acadia Pharmaceuticals Inc. was among the top detractors from performance. Acadia Pharmaceuticals develops and commercializes small molecule drugs that address unmet medical needs associated with central nervous system disorders. Acadia’s Nuplazid (Pimavansenn) is marketed for treating hallucinations and delusions that accompany Parkinson’ s disease psychosis. Additionally, Nuplazid is being developed to treat hallucinations and delusions related to dementia. The price of Acadia shares fell significantly in response to an FDA notification on March 3 that the agency had identified deficiencies in the drug’ s supplemental new drug application that currently preclude discussion of labeling and post-marketing requirements.”
7. Paysafe Limited (NYSE:PSFE)
Number of Hedge Fund Holders: 42
Year-to-Date Decline in Share Price: 74%
Paysafe Limited (NYSE:PSFE) provides digital commerce solutions. The firm recently missed market estimates on revenue for the third quarter and cut guidance for the fiscal year. The share price dropped 22% as a result.
On November 12, investment advisory Wolfe Research downgraded Paysafe Limited (NYSE:PSFE) stock to Peer Perform from Outperform and lowered the price target to $4.5 from $14. Analyst Darrin Peller issued the ratings update.
At the end of the third quarter of 2021, 42 hedge funds in the database of Insider Monkey held stakes worth $597 million in Paysafe Limited (NYSE:PSFE), down from 50 in the previous quarter worth $1.1 billion.
6. StoneCo Ltd. (NASDAQ:STNE)
Number of Hedge Fund Holders: 37
Year-to-Date Decline in Share Price: 80%
StoneCo Ltd. (NASDAQ: STNE) is a fintech firm with an extensive presence in Brazil. The company has failed to impress the market with earnings over the last two quarters and admitted that “short-term” headwinds were causing a minor blip in performance.
Bradesco BBI analyst Otavio Tanganelli recently downgraded StoneCo Ltd. (NASDAQ: STNE) stock to Underperform from Neutral and lowered the price target to $17 from $49, noting that near-term margins for the firm would likely compress in the coming months.
At the end of the third quarter of 2021, 37 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in StoneCo Ltd. (NASDAQ:STNE), down from 44 the preceding quarter worth $2.7 billion.
In addition to Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and PayPal Holdings, Inc. (NASDAQ:PYPL), StoneCo Ltd. (NASDAQ: STNE) is one of the stocks that hedge funds are viewing with caution.
In its Q2 2021 investor letter, JDP Capital Management, an asset management firm, highlighted a few stocks and StoneCo Ltd. (NASDAQ:STNE) was one of them. Here is what the fund said:
“StoneCo (NYSE: STNE) has been in our portfolio since early 2019 and has appreciated 225% since. In the first half of 2021 the stock was down nearly 20% and was a drag on the fund’s performance.
Stone is a leading fintec company in Brazil that provides back-office software, loans and other financial services to small and medium sized businesses (SMBs). We have discussed Stone in past letters and the company’s “ladder up” from a card processor to a supplier of enterprise software used to sell financial products on top of such as working capital loans.
The company generates a lot of cash that it reinvests to acquire or build new financial products for its customer base. Since we invested, the company has grown the number of SMB clients by 3x, revenue by 2.3x, and net income by 2.2×11.
The pandemic’s impact on SMBs in Brazil has been severe, especially for the many retailers who are only now adopting an e-commerce strategy. In the first half of 2021 Stone increased loss provisions on its lending product, and overall growth has slowed somewhat. The stock’s decline earlier this year was not surprising, but investors are now ignoring progress that has enhanced Stone’s position for coming out much stronger when the recovery begins.
StoneCo Q1 2021 Earnings Call: “Based on (i) our learnings with lockdowns last year, (ii) recent client transactional data and (iii) learnings from the dynamics of countries where vaccines are widespread, we expect that once vaccination scale (which we think will happen in the second half of 2021), the economic recovery will be fast and – although delayed – Brazil is moving in the right direction. For these reasons, we have made an informed decision to be ready for recovery by investing in growth…”
“…In the first quarter, we decided to increase our salesforce headcount by 24%, marketing investments by 33%, customer service and logistics headcount by 32% and technology headcount by 20% in order to be the fastest player when our economy comes back to normal levels.”
“I want to start our presentation by highlighting that Brazil went through a second wave of COVID in the first quarter of ’21, which imposed commerce restrictions in several cities throughout the country. Those restrictions were felt by our clients with average TVP reaching a low in the end of March…
…But similar to the behavior we saw in the comeback from the first lockdown in 2020, we already observed significant and quick recovery with average TPV in May achieving levels above January 2021. As Thiago mentioned, we expect that once vaccinations are scaled, the economy recovery of the country will be fast.”
In terms of COVID recovery opportunities within our portfolio, Stone might be the most “coiled” because the impact on Brazilian small businesses has been so traumatic. In addition, Stone is part of a much larger and fast-moving transition happening in Brazil around the digitalization of financial services. The speed of this transition is unique to Brazil because the Central Bank is actively trying to reduce the country’s previous dependency on a small handful of large banks. Important progress in the first half of 2021 included closing on the long-awaited acquisition of Linx, a mature provider of enterprise software with a large footprint across Brazil. The acquisition will provide Stone meaningful cross-selling opportunities and a more diversified customer base.”
5. Workhorse Group Inc. (NASDAQ:WKHS)
Number of Hedge Fund Holders: 11
Year-to-Date Decline in Share Price: 70%
Workhorse Group Inc. (NASDAQ:WKHS) is a technology company that markets battery-electric vehicles. The stock has fallen sharply since the beginning of November amid reports that the company is under investigation by the Department of Justice and the Securities and Exchange Commission.
Workhorse Group Inc. (NASDAQ:WKHS) missed market expectations on earnings for the third quarter. DA Davidson, Cowen, and B Riley have all lowered their price targets on the stock to reflect the negative sentiment around the firm.
At the end of the third quarter of 2021, 11 hedge funds in the database of Insider Monkey held stakes worth $17 million in Workhorse Group Inc. (NASDAQ:WKHS), down from 13 in the preceding quarter worth $60 million.
4. Virgin Galactic Holdings, Inc. (NYSE:SPCE)
Number of Hedge Fund Holders: 16
Year-to-Date Decline in Share Price: 29%
Virgin Galactic Holdings, Inc. (NYSE:SPCE) is an integrated aerospace firm based in New Mexico. The share price of the company has fallen amid repeated delays to space travel programs and the recent expiry of the lock-up period for the stock.
In earnings results for the third quarter, Virgin Galactic Holdings, Inc. (NYSE:SPCE) missed market estimates on earnings per share by $0.04. The revenue over the period was $2.5 million, beating estimates by $0.8 million.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Virgin Galactic Holdings, Inc. (NYSE:SPCE) with 1.2 million shares worth more than $32 million.
3. LendingTree, Inc. (NASDAQ:TREE)
Number of Hedge Fund Holders: 24
Year-to-Date Decline in Share Price: 56%
LendingTree, Inc. (NASDAQ:TREE) owns and runs an online consumer platform. The company recently posted earnings for the third quarter, reporting earnings per share of -$0.33, missing estimates by $0.19. The updated guidance numbers for the fiscal year were also conservative.
On October 29, investment advisory Oppenheimer lowered the price target on LendingTree, Inc. (NASDAQ:TREE) stock to $240 from $275 but kept an Outperform rating on the shares, noting the disappointing quarterly results as one of the reasons behind the downgrade.
At the end of the third quarter of 2021, 24 hedge funds in the database of Insider Monkey held stakes worth $161 million in LendingTree, Inc. (NASDAQ:TREE), down from 30 in the previous quarter worth $346 million.
In its Q1 2021 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and LendingTree, Inc. (NASDAQ:TREE) was one of them. Here is what the fund said:
“We also exited our position in LendingTree. LendingTree is a two-sided marketplace in the consumer financial services vertical that connects borrowers with lenders. The company has built a brand over more than 15 years that offers savings to borrowers by having banks compete. The company had been acquired by IAC before the financial crisis and then was spun out in the worst of the global financial crisis (GFC). The company had a resurgence following the GFC by adding value in the mortgage market. The company used the strong cash flow generation in the model to expand into adjacencies and diversify the revenue base. The product offering has expanded over the years mostly through acquisition and includes credit cards, personal loans, and insurance.
This diversified strategy had paid dividends amid demand shocks, like the decline in demand for mortgages 18 months ago and then the demand destruction caused by the pandemic. However, diversification has some downsides. While it protects the company from major demand destruction shocks, in our opinion, it has made it hard to drive consistent long-term compounding as products have come in and out of favor due to macro factors. While we think that LendingTree has solved a unique problem, we do not believe it has the same compounding potential going forward and have exited the position in accordance with our process.”
2. Vroom, Inc. (NASDAQ:VRM)
Number of Hedge Fund Holders: 23
Year-to-Date Decline in Share Price: 62%
Vroom, Inc. (NASDAQ:VRM) runs an ecommerce platform for buying and selling cars. The stock has been hit in recent weeks following reports that used car platforms were being investigated by the government over hundreds of complaints regarding delayed registrations and poor customer service.
Truist analyst Naved Khan recently lowered the price target on Vroom, Inc. (NASDAQ:VRM) stock to $40 from $54 but kept a Buy rating, noting that supply chain issues and labor shortages were causing “transitory headwinds” for the firm.
At the end of the third quarter of 2021, 23 hedge funds in the database of Insider Monkey held stakes worth $119 million in Vroom, Inc. (NASDAQ:VRM), up from 21 in the preceding quarter worth $180 million.
In its Q3 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Vroom, Inc. (NASDAQ:VRM) was one of them. Here is what the fund said:
“Vroom, Inc. (VRM) was down 47.31% after reporting earnings that beat expectations but disappointed on guidance. Revenue of $761.9M beat consensus of $647.4M with EBITDA of -$60.7M slightly beating consensus of -$60.9M. The company guided for total revenue of $858-$891M versus consensus of $699M, but both gross margins and EBITDA disappointed. The company’s gross margin guidance of 6.2% was well below expectations of 8.8% leading to EBITDA of -$100M to -$92M against expectations -$59.4M as the company continues to invest for growth. The company also announced the appointment of Robert Krakowiak as CFO effective immediately, with David Jones remaining with the company through the end of November.”
1. iRhythm Technologies, Inc. (NASDAQ:IRTC)
Number of Hedge Fund Holders: 27
Year-to-Date Decline in Share Price: 58%
iRhythm Technologies, Inc. (NASDAQ:IRTC) is a digital healthcare company based in California. The company has had a mixed year so far with regards to earnings. A major dent in the share prices was caused earlier this year by the release of Medicare reimbursement rates that were below expectations.
Citi analyst Joanne Wuensch has a Neutral rating on iRhythm Technologies, Inc. (NASDAQ:IRTC) stock with a price target of $120. The company has a market cap of $2.9 billion and posted $265 million in revenue last year.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in iRhythm Technologies, Inc. (NASDAQ:IRTC) with 615,715 shares worth more than $36 million.
In its Q2 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and iRhythm Technologies, Inc. (NASDAQ:IRTC) was one of them. Here is what the fund said:
“Last quarter, we discussed our decision to meaningfully reduce our position size in iRhythm Technologies after Medicare Administrative Contractor (MAC) Novitas announced a dramatic reimbursement cut for the company’s Zio cardiac monitor. In early April, Novitas revisited its decision and announced it was increasing the reimbursement rate. Unfortunately, the new price still falls significantly below our expectations, and iRhythm also announced it would no longer provide Zio services to Medicare fee-for-service patients (25% of the company’s revenue). While we believe the Zio is a substantial upgrade from the Holter monitor given its smaller size and algorithm-based analytics, we decided to end our investment campaign shortly after the announcement in April given our lack of visibility into the profit cycle.”
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Disclosure. None. 10 Reddit Stocks that Flopped in 2021 is originally published on Insider Monkey.
