Run Far Away From Rent the Runway Stock. It’s an Investor Trap.

Stocks to sell

Here’s what’s going on with Rent the Runway (NASDAQ:RENT). Some traders are desperately looking for the next red-hot meme stock or the next artificial intelligence stock. Targeting Rent the Runway stock is a terrible idea that will rob investors of their capital.

Just to recap, Rent the Runway allows people to rent clothing online. Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, observed “strong buying pressure on a low float stock” when the Rent the Runway share price soared earlier this year.

We’re talking about a roughly 360% share-price surge in one week. Yet, Rent the Runway stock is still far below its peak price from the 2021 hype cycle.

Perhaps that’s because the company isn’t in great financial condition — but as always, don’t just take my word for it. Instead, let the data inform your final assessment of Rent the Runway.

Rent the Runway’s Muted Expectations

Speaking of data, Rent the Runway’s fourth-quarter fiscal 2023 revenue only grew 0.5% year over year to $75.8 million. As you can surely deduce from this, Rent the Runway isn’t a particularly large company.

During that same time frame, Rent the Runway’s active subscriber count declined 1% and the company’s gross profit decreased 10.2%. Rent the Runway is unprofitable as the company incurred a $24.8 million net loss in Q4 FY2023.

What about the current fiscal year, though? Rent the Runway Chief Financial Officer (CFO) Sid Thacker declared, “We believe fiscal year 2024 will be a transformative year for Rent the Runway.”

At the same time, Rent the Runway only guided for “[r]evenue growth of between 1% to 6% versus fiscal year 2023.” Personally, I might call that magnitude of sales growth muted, rather than “transformative.”

Rent the Runway Soars for All the Wrong Reasons

Rent the Runway’s financial results and guidance shouldn’t inspire a frenzied share-buying spree. Yet, Rent the Runway stock briefly halted its long-term decline earlier this year and soared hundreds of percentage points.

I don’t believe that Rent the Runway’s financials had anything to do with the share-price rally. Instead, I see two catalysts/culprits at work here.

First, there was the mid-May meme-stock rally that lifted the stock prices of GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and others.

Eager traders seeking to ride the tide with low-float boats pick up some Rent the Runway stock, evidently. Meanwhile, the artificial intelligence craze is still in full effect in 2024, and everybody wants to front-run the “next” Nvidia (NASDAQ:NVDA).

It’s almost required by law that chief executives mention AI as often as possible nowadays. So, it’s no surprise that Rent the Runway Jennifer Hyman touted her company’s “AI search” feature for online clothing rentals.

Hyman also emphasized, “You’re either going to be a beneficiary of AI as a consumer-facing company or you’re going to die because of AI.”

Apparently, the market likes it when a chief executive mentions AI twice in one sentence.

Thus, Rent the Runway suddenly became the “poster girl for investors that believe AI can help small business and not just large behemoths,” according to Running Point Capital Advisors Chief Investment Officer Michael Ashley Schulman.

You can buy into the AI “poster girl” perspective if you want to. I’d prefer to focus on Rent the Runway’s actual financial data and sales guidance, which aren’t exciting enough to put on a poster.

Rent the Runway Stock: Run Away, Run Away!

Rent the Runway is an small e-commerce startup that got caught up in the meme-stock trade and the AI trend. Yet, it remains to be seen whether fiscal 2024 will actually be “transformative” for Rent the Runway.

Sensible investors shouldn’t feel a desperate need to find the next meme stock or AI-trend trade. To me, Rent the Runway isn’t the “poster girl” of anything, except perhaps the market’s search for shiny objects. Therefore, the best policy right now is to maintain a safe distance Rent the Runway stock.

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.

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