Newegg logo
Source: Newegg Facebook

Despite Reddit Chatter, Newegg (NEGG) Stock Isn't a Good Buy Right Now

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Jul. 8 2021, Published 10:07 a.m. ET

Newegg Commerce (NEGG) stock rose over 148 percent on July 7, but was lower in the premarket trading session on July 8. The stock rose significantly after the company announced that it's now offering professional PC assembly services to consumers who design their own computers. What’s the forecast for NEGG, and should you buy or sell the stock?

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Newegg is a consumer electronics-focused online retailer. On May 20, the company went public through a reverse merger deal with Lianluo Smart Limited. Newegg stock has risen 633 percent in about one and a half months since the stock was listed. The S&P 500 returned 6 percent over this period.

Newegg announces custom service, stock responds

On July 7, Newegg announced that it's now offering a custom PC building service. The is significant since Newegg already has all of the components required to build powerful gaming or editing PCs. As a result, Newegg promises that it can deliver custom PCs for consumers faster compared to other professional PC builders. The e-commerce company also announced that it was selling hard-to-find NVIDIA GeForce RTX graphics cards.

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newegg stock forecast
Source: Newegg Facebook

Currently, Newegg is attracting the highest interest on Reddit’s WallStreetBets forum, which has 10.6 million members and is best known for short squeezes. Retail investors on social media platforms think that Newegg could be the next AMC Entertainment or GameStop.

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Newegg’s stock forecast

According to CNN Business, the one analyst covering Newegg stock has given it a buy rating and target price of $44. The target implies a downside of 35 percent over the next 12 months.

Newegg’s short interest

The short interest in Newegg stock has increased. According to Fintel, on July 7, around 21.5 million Newegg shares were sold short, which represents almost 29 percent of volumes that day. On July 6, about 2.7 million Newegg shares were sold short. The high volume of negative bets implies that it might be a candidate for a short squeeze.

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WallStreetBets targets Newegg stock

Newegg stock is one of the most talked-about stocks on WallStreetBets. Some mentions include rocket ship emojis and forecasting that Newegg stock will go to the moon. Other mentions suggest that the stock isn't a buy after it gained significantly in a week.

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Newegg stock isn’t a good buy.

Newegg’s valuation has surged to around $25 billion as of July 7 compared to just $10 million in June. In 2020, the company reported total revenue of $2.1 billion. This suggests that Newegg’s 2020 price-to-sales multiple was 11.9x. In comparison, U.S. electronics retailer Best Buy trades at a fiscal 2020 price-to-sales multiple of 0.6x.

The recent surge in Newegg’s stock price isn't based on the company’s fundamentals. I think that the stock’s 300 percent surge over the last five days was significantly overdone. As the Reddit-fueled short squeeze loses steam, we can expect some weakness in Newegg stock. The stock is down 20 percent in the premarket trading session on July 8 as investors booked profits.

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