Following the GameStop (NYSE:GME) short squeeze earlier this year, the Reddit forum WallStreetBets (WSB) has become immensely popular. While WSB’s huge bets against short sellers and consequent short squeezes have helped many stocks skyrocket in price, it has also resulted in high valuations for several fundamentally weak stocks. So, we believe overvalued Reddit stocks Upstart Holdings (NASDAQ:UPST), Clover Health Investments (CLOV), and Root Inc. (ROOT), each with bleak growth prospects, are best avoided now. Read on.The subreddit WallStreetBets (WSB) gained immense popularity following the GameStop Corporation (GME) short squeeze it drove in January. WSB has targeted many other fundamentally weak stocks that possess high short interest and benefited retail investors by causing short squeezes in them.
However, the resurgence of coronavirus infections has raised concerns over the economy's faltering recovery and overshadowed the optimism about the Federal Reserve’s possible continuation of its accommodative policy. Hence, fundamentally weak and overvalued stocks that surged in price over the past few months, driven solely by social-media hype, could witness a significant pullback in the near term.
Therefore, we believe the shaky fundamentals and excessively stretched valuations of Reddit stocks Upstart Holdings, Inc. (UPST), Clover Health Investments Corp. (CLOV), and Root Inc. (ROOT) could potentially cause their share prices to retreat in the near term. So, they are best avoided now.