The Picture Is Mixed for Newegg Stock

Newegg (NASDAQ:NEGG) stock has important strengths and key weaknesses. Newegg — an e-commerce company that focuses on tech — is a profitable, rapidly growing company in an expanding, very promising sector.

But on the other hand, it appears to be a meme stock and has become linked to cryptocurrencies at a time when meme stocks and cryptos haven’t done very well in recent months and may very well collapse soon. Also worth noting is that spending on technology could slow in the medium term.

In light of the mixed outlook of NEGG stock, I recommend that investors sell the shares. But let’s dig into some of the details now.

Newegg’s Strengths

In many ways, from a fundamental perspective, Newegg is everything GameStop (NYSE:GME) wants to become. Specifically, Newegg is a major player in tech e-commerce, it’s profitable, and its revenue is growing rapidly.

In November, the company provided 2021 top-line guidance of $2.4 billion, versus its 2020 net sales of $2.11 billion. Newegg expected its 2021 net income to come in at around $36.1 to $40.1 million, up from $30.4 million in 2020.

Additionally, Newegg’s sector certainly has its strengths. Indeed, overall tech spending jumped 9.6% in 2021, “propelled by increased reliance on digital technology during the pandemic,” as Barron’s explained. And in 2021, U.S. e-commerce sales jumped 14.2% year-over-year, the U.S. Commerce Department has estimated.

Newegg’s Weaknesses

Unfortunately for the owners of NEGG stock, the shares, as another InvestorPlace columnist,  Stavros Georgiadis, recently pointed out, appear to have become closely tied to the value of cryptocurrencies and meme stocks. But as I’ve noted in prior articles, cryptos and meme stocks have not performed very well in recent months. For example, GME stock is down 40% from its November high, while Bitcoin (BTC-USD) has also tumbled approximately 40% from its November peak. 

And I believe that, with the Federal Reserve raising interest rates and shrinking its balance sheets, meme stocks and cryptos could perform even more poorly in the weeks and months ahead. Meanwhile, after Treasury Secretary Janet Yellen praised the virtues of “monetary sovereignty and uniform currency” while identifying problems with cryptos, long-term investors should be worried that the Biden administration will, within a year, look to crack down on cryptos.

Finally, some expect the spending on technology to decelerate meaningfully this year as worries about the coronavirus ease. For example, the Consumer Technology Association (CTA) predicted that “U.S. consumer technology retail sales growth will slow by 2.8% this year to $505 billion,” according to Barron’s.

Given the weaknesses and the risks of NEGG stock, I recommend that investors sell and avoid the name for now.

On the date of publication,  Larry Ramer 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.