Stocks to sell

In early August, Magic Empire Global (NASDAQ:MEGL) received a lot of attention, and MEGL stock shot up quickly. However, this is most likely due to a Reddit-fueled short squeeze. Regarding the company itself, there isn’t a strong argument to invest in Magic Empire Global. So, it’s wise to stay away from this particular stock even if you like to trade meme stocks.

Magic Empire Global certainly made some magic happen during the first couple of weeks in August. Or at least, some meme-stock traders made the share price levitate magically, with no particular company-specific news to justify a massive rally.

Frankly, many traders probably knew little or nothing about Magic Empire Global as a business. Today, we’ll try to dig up whatever relevant information about the company we can find. You probably won’t be too impressed with Magic Empire Global — and that’s a valid reason to find another company to park your investable capital into.

What’s Happening With MEGL Stock?

As InvestorPlace contributor Dana Blankenhorn reported, Hong Kong-based investment firm Magic Empire Global held its initial public offering (IPO) on Aug. 5. Another contributor, Joel Baglole, observed that MEGL stock rallied from $4 a share to a peak of $235.95 within a few weeks’ time.

That’s a gain of around 5,800%, in case anybody’s keeping score. Even the most overeager Reddit trader might consider a return of that magnitude to be excessive. More sensible investors would simply stay away altogether.

Baglole mentioned Magic Empire Global’s low share float, and that’s probably what made it so attractive to meme-stock traders. They could pounce again, so short-selling the shares isn’t recommended.

As of late August, MEGL stock had coughed up most of its gains, landing at $6 and change. The Reddit crowd is a fickle one, so betting on a second rally is basically just gambling.

Magic Empire Global Doesn’t Have Impressive Financials

As usual with meme stocks, the movement of the Magic Empire Global share price doesn’t seem to reflect the company’s fundamentals. As Baglole pointed out, Magic Empire Global was founded in 2016 but “generated a profit of only $203,000 on revenue of a little more than $2 million.”

In a similarly cautious vein, Blankenhorn noted that Magic Empire Global generated just $2.1 million in 2021 revenue. Moreover, “Its sole operating entity, Giraffe Capital, says it offers ‘comprehensive corporate finance services’ but seems to have sponsored few public offerings.”

Indeed, the company’s prospectus doesn’t offer much insight into what Magic Empire Global has actually accomplished as a business. The company’s total revenue and net income declined from 2020 to 2021.

Plus, the prospectus provides warnings about the Chinese government’s crackdowns on some businesses, as well as this gem:

“If we fail to meet applicable listing requirements, Nasdaq may delist our Ordinary Shares from trading, in which case the liquidity and market price of our Ordinary Shares could decline.”

This doesn’t necessarily mean that a Nasdaq delisting is imminent. It’s a stark reminder, though, of the lopsided risk-to-reward proposition for anyone hasty enough to invest in Magic Empire Global.

What You Can Do Now

The best thing you can do now is to learn a valuable lesson about what can happen if you invest in the wrong meme stock. Unless your luck and timing are perfect, you could lose money very quickly.

The decline of MEGL stock was just as astounding as its ascent. Meanwhile, it’s difficult to find any reason to invest in Magic Empire Global. Sorry to say it, but it looks like the magic moment for this company and stock have passed, probably never to return.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.