Don’t Try to Catch the Falling Knife With Marin Software

Last month, Marin Software (NASDAQ:MRIN) enjoyed a meme stock rally that made similar runs seem tame by comparison. But that doesn’t mean it’s wise to buy MRIN stock now as it crashes back to earth. The circumstances that helped the digital marketing software stock rise 16-fold aren’t likely to repeat themselves.

Three factors worked in tandem to create this run “to the moon.” First was the resurgence of the meme investing trend. Late May and early June saw a comeback for old and new favorites of the Reddit stock trading community. Yet the second wave of meme stocks has cooled, and an upcoming third wave is starting to look questionable.

The second factor was the small size of its outstanding float. This translated to an intensified move higher, as demand from Reddit traders vastly outweighed the number of shares available for sale. The final piece was the Instacart ad integration news. Investors made a mountain out of a molehill with this. Even now, the upside from this is likely more than accounted for at today’s price around $6 per share.

Another big announcement like this could spark interest again for Marin Software, as similar events have done in the past. That being said, the next big customer win could be far down the road. In the meantime, as the hype keeps fading, shares will give up the rest of their gains. Ahead of another high double-digit percentage move lower, it’s best to avoid MRIN stock for now.

Why You Shouldn’t Buy the Pullback in MRIN Stock

Down more than 75% from its 52-week high, Marin Software may look like a prime “buy the dip” situation, but it’s not.

Sure, it has greater potential to make outsized moves compared to larger, more liquid meme stocks — especially since 18.7% of its small float has been sold short.

But without a repeat of frenzied buying by retail traders, it’s not going to zoom back toward its recent high of $27.26 per share. Considering where the Reddit stock trend is heading, the next wave isn’t happening anytime soon — if at all.

Why? Putting it simply, the “meme stock madness” philosophy isn’t gaining new adherents. With many former meme traders throwing in the towel, there’s much to counter Barron’s declaration that the meme stock trade is far from over.

Admittedly, it’s not as if retail investors buying low-priced stocks en masse is the only thing that can move the needle. As has been seen in the past, the company might see another game-changing development for its flagship MarinOne platform. But by the time the next one happens, there’s a good chance MRIN stock will have fallen another 75% from where it trades today.

No Use Buying Now Ahead of the Next Big Development

Increased investor enthusiasm following a material development isn’t a new phenomenon for Marin Software. For example, back in December 2018, shares skyrocketed when the company entered a revenue-share agreement with Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google unit.

In less than a year, this deal failed to reverse the company’s long-term revenue declines. MRIN stock gave up its Google-related gains.

It’s too early to say the Instacart integration will result in a similar outcome. But since the Google deal failed to be the game-changer headlines suggested, it’s safer to assume this latest news may not help the company’s long-term prospects.

The silver lining is that speculators will likely bid this stock up again the next time Marin Software announces a major deal. Yet the possibility of another development down the road isn’t going to keep the stock at $6 per share.

As today’s valuation remains out of sync with its falling sales and continued unprofitability, there’s not much in the picture to prevent MRIN stock from falling back to its lows around $1 per share. At those depressed levels, it may be worth it to roll the dice. But today, it’s not worth the risk.

Hold Off on MRIN Stock for Now

Don’t count on the stars aligning to send this stock “to the moon” again in the near-term. It may still be heavily-shorted, with relatively low levels of liquidity compared to similar Reddit short-squeeze plays. Yet this trend has lost a lot of energy, making it doubtful that MRIN stock will see a resurgence.

News of another deal, like the ones made with Google and Instacart, may send it soaring once again. But there’s no guarantee that shares won’t have fallen considerably more by then.

On the date of publication, Thomas Niel 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.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.