Investor appetite for “meme stocks” may already be waning.
Stocks of companies favored by retail traders, including GameStop, AMC Entertainment and BlackBerry, plunged Wednesday morning.
GameStop shares plunged 33% to $32.44 in Wednesday morning trading after soaring more than 130% earlier this week. Theater chain AMC fell 26%. Business software maker BlackBerry fell 9%. Richard Branson’s spaceflight company Virgin Galactic fell 14%.
The stock price soared the day before after Keith Gill, known online by the handle “Rolling Kitty,” returned to X (formerly Twitter) for the first time in three years. Mr. Gill, who has a large following on social media platforms, announced his death in 2021 after buying shares in video game retailer GameStop for $53,000 and turning them into millions of shares as hype for the stock grew. became the face of meme stock traders. .
But meme stocks tend to swing wildly in either direction, posing risks for small investors looking to profit, experts warn.
“People are only buying because they believe more people will come and buy after them,” Corey Mitchell, an analyst at Trading.biz, said in an email. “We can sell it at a higher price to other people,” he said in an email. “Stock prices may rise in the short term, but unless the company makes a major turnaround, any rally will be followed by a quick and hard selloff.”
What are meme stocks?
Meme stocks are companies whose stock prices rise due to social media buzz rather than traditional financial fundamentals such as growth or profits. Experts added that meme stocks typically have low profitability or face challenges in their core business, which increases risk for small investors.
According to S&P Capital IQ, GameStop has struggled to grow, posting a net loss of $331.1 million in fiscal 2023 on revenue of $5.9 billion (previous year, it posted a net loss of $331.1 million on revenue of $6 billion). million dollar loss).
“The company appears to have lost significant market share in (particularly) hardware and software in the fourth quarter, significantly below modest industry growth,” Wedbush analysts said in a research note. Stated.
And AMC on May 8 reported a first-quarter loss of $135 million on revenue of $951 million, as the film industry was affected by a shrinking box office lineup due to last year’s actors and writers strike. It was announced that there was little change from the dollar.
Meanwhile, AMC is capitalizing on renewed interest in its stock, saying in a May 14 regulatory filing that it sold about 73 million shares to raise $250 million in new capital. Stated. The company also said it had entered into a new agreement to exchange some debt for equity, which may have contributed to the stock’s rise earlier in the week.
Vital Knowledge market analyst Adam Crisafulli told investors that “the air is starting to come out of the little meme/nonsense stock rally. This is due in large part to AMC’s debt-for-equity swap, which has increased the amount of outstanding “The stock has gone up even more,” he told investors. Note.
Mr Gill resurfaced on X and posted an image of a person slouched in a chair, which Mr Mitchell said his followers took to mean “pay attention”.
Mitchell added: “While there was no mention of stock prices or guidance, traders took this to mean 2021 could be repeating itself.”
In some respects, that appears to be true. At the beginning of 2021, many meme stocks soared; fell down Later that year, into 2022, reality will set in.
