By Vidya Ramakrishnan
Meme stocks like AMC (AMC) and GameStop (GME) get their price spikes from strong buying interest. But those sudden and sporadic gains are as unpredictable as they are risky.
GameStop reported its third quarter results after the close Tuesday, a key event for meme traders. Sales of $860 million on a loss of 4 cents per share missed analysts’ estimates of $887.7 million in revenue and a loss of 3 cents per share. Still, shares soared about 12% in after-hours trading.
‘Roaring Kitty’ Ignites Meme Frenzy
AMC soared on Thursday but erased all of those gains Friday as it fell nearly 10%. Shares soared after influential meme investor Keith Gill, also known as “Roaring Kitty,” posted an image of a mocked-up Time Magazine cover with a blank computer screen and keyboard on Twitter/X.
But on Friday, shares fell after the movie theater company announced an agreement to sell 50 million shares, according to a filing with the Securities and Exchange Commission.
GameStop rallied on Thursday as well and added to its gains on Friday. It fell 4% on Monday and a further 3% on Tuesday headed into the earnings report.
GameStop Q2 Earnings Surprise
GameStop’s fiscal second-quarter sales of $798 million were 31% lower than the prior year’s $1.16 billion. Further, sales declined from the first quarter’s $881.8 million. But earnings of 1 cent per share reversed a year-ago loss of 3 cents per share. Analysts expected a loss of 8 cents per share on sales of $895.7 million.
Shares plunged 12% after the Sept. 10 earnings announcement, sending the stock below the 50-day moving average.
GameStop’s volatility is cause for caution. For one thing, volatile movement provides little opportunity for well-formed bases.
Further, the stock is down more than 75% from its all-time high 120.75, reached in January 2021.
Going back further, the video game retailer grew an investor fan base in late 2020 at the height of the meme-stock frenzy. By January 2021, the meme stock shot up 1,625% to 81.25, then crashed to 9.63 the very next month.
Meme Stocks Rally In May
Dramatic movements are common in meme stocks like GameStop.
Meme stocks rallied in May after Gill posted on X for the first time since the pandemic. AMC (AMC) soared as much as 308% May 13-14 and GameStop (GME) gained 271% to the peak of the same two-day period. But today those gains have vanished almost entirely.
AMC quickly gave up its gains after the movie theater company on May 15 announced an equity swap exchange 23.3 million newly issued shares for bonds worth $163.9 million maturing in 2026.
Meme Stocks A Buy Now?
A meme stock is a speculative play, known for high levels of unpredictability because it can rally or crash in any market, and at any time. Its meteoric rises and heart-stopping crashes typically depend on social media hype and online interest.
Hyper stock valuations for these companies depend, for the most part, on young fans and an anonymous following that can appear or disappear overnight. Retail investors dominate the interest in these stocks.
These stocks do not follow traditional investment wisdom, which says you should buy stocks based on earnings growth and performance. As such, they are extremely speculative.
Key Words: #GameStop #MemeStocks #RoaringKitty #Earnings #Volatility #Investing #Speculation #StockMarket
Information in Centsational Market is for informational and educational purposes only and should not be construed as an offer, recommendation, solicitation, or rating to buy or sell securities.
