Since the financial crisis, we’ve heard skeptics decry the supposed stock market bubble and predict a market crash is just around the corner. They haven’t really been proven correct so far.
Certainly, we’ve seen some big moves. The novel coronavirus pandemic drove a huge plunge in March 2020. But, obviously, that selling was due more to panic about the pandemic than market valuations gone awry.
Late 2018 saw a huge pullback, particularly in tech. In early 2016, the S&P 500 hit a 22-month low. There was a huge sell-off in 2011 as well.
None of the moves really qualified as a market crash and quick reversals in each case hardly supported the doomsayers’ predictions.
Skeptics remain ardent here in 2021, and we have seen a stock market bubble deflate this year — or perhaps more accurately, a few smaller bubbles. Pre- and post-merger SPACs (special purpose acquisition companies) have pulled back sharply.
Many electric vehicle stocks are down more than 50% from their highs. Many of the hot names that saw huge rallies in last year’s fourth quarter and into early 2021 don’t look so hot anymore.
That might be as close as the skeptics get to vindication, at least for now. But if you look elsewhere, there are still names that suggest investor optimism remains at dangerously high levels — the kind of levels that suggest the risk of a broader stock market bubble. Here are four of those names:
4 Stocks Vulnerable to a Market Crash: PLBY Group (PLBY)
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Playboy’s return to the public markets, via a SPAC merger, has gone exceedingly well. PLBY stock has nearly quadrupled just since early March.
There’s one core reason for the optimism: NFTs, or non-fungible tokens. Playboy has announced its plans to ride that hot trend using its decades of images.
That decision alone seems to have added roughly $1 billion to PLBY Group’s market value in a matter of weeks. The rest of the business hardly seems all that impressive.
The Playboy brand has some value in China, but its cachet among younger men in the West is in steady decline. Its 2020 results were strong, thanks in part to acquisitions, but also benefited from a weak 2019 in which revenue declined 22% year-over-year.
Those acquisitions, meanwhile, hardly seem like the kind of deals to drive these kinds of gains. PLBY paid $25 million for Lovers, a mostly brick-and-mortar chain of sexual products. It added lingerie site Yandy early last year.
Indeed, the SPAC merger itself was greeted mostly with a yawn before the NFT craze struck. If (or more likely, when) that craze fizzles, PLBY stock probably goes with it.
Takung Art (TKAT)
TKAT stock is another bubbly play on NFTs if you’re not worried about a market crash, but with one major distinction.
The Chinese platform for art trading hasn’t even announced its move into NFTs yet. Sheer speculation sent TKAT stock from $1.48 at the beginning of the year to as high as $74. At a current price just above $20, the stock still has gained more than 1,100% year-to-date.
And, again, nothing has happened.
It’s one thing for true believers in NFT to see PLBY as a massive opportunity. Whether the plans work or not, at least they exist. When investors are bidding up a stock based on what the company might do, that seems like at least some evidence for the existence of a bubble.
Market Crash Stocks: Koss (KOSS)
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I’ve said it before, and I’ll say it again. What the r/WallStreetBets community did with GameStop (NYSE:GME) in mid-January was brilliant. There was a solid turnaround case and a group of overexposed short sellers.
WSB executed a squeeze (even if some of the gains likely came from the coordinated buying in both GME stocks and options) and profited handsomely. But that thesis is over.
It has been over since before the GameStop story gained national reach. For the past three months, traders seem to be trying to relive the trade, whether the same conditions exist or not.
That said, most Reddit stocks have been able to keep a good chunk of their gains even with sharp pullbacks from January peaks. That’s in part because social media posters (few of whom have any idea what they’re talking about, to be blunt) are pushing narratives that suggest the next squeeze is just around the corner.
KOSS stock was one of the odder beneficiaries of the Reddit rally in January. The headphone maker was not on anyone’s radar heading into this year. Short interest was minimal.
That short interest has picked up, given that KOSS now trades at about 200x earnings and still has gained almost 2,000% from its 52-week low. But the high interest is basically the entire bull case at this point. Investors who bought Koss and other Reddit darlings at January highs should already know how that works out.
In 2019, Ideanomics told investors in a filing with the U.S. Securities and Exchange Commission that it owned 2,409 Bitcoin (CCC:BTC-USD) and 17,460 Ethereum (CCC:ETH-USD). Chief executive officer Alf Poor said the same on a conference call that year.
It wasn’t true. Ideanomics in fact owned the cryptos, supposedly, denominated in GTDollar Coins, a cryptocurrency that only traded on a single exchange whose website often wasn’t functional.
The year before, Ideanomics traded crude oil. It shut that business down. It also announced plans for “Fintech Village” in Connecticut. Ideanomics did little with the site before agreeing to sell it this month.
Bubbles often see dodgy companies post huge gains. Ideanomics seems like a perfect example. It now has a market capitalization of more than $1 billion amid plans to be an electric vehicle play in China and the U.S. and a fintech company and a part-owner of an “influencer” platform.
In normal markets, the litany of past broken promises might drive some skepticism toward such grandiose plans. Even with IDEX stock pulling back again, a $1.2 billion market value doesn’t suggest much skepticism at all.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.