When you thought Monday’s eye-popping rally was only a one-day flash within the pan, you’ll be sorely upset. The surge in meme stocks continues on Tuesday. In actual fact, a few of them are literally picking up speed.
Yesterday, GameStop (NYSE:GME) stock shot up 74.4% to $30.45; AMC Entertainment (NYSE:AMC) stock soared 78.35% to $5.19; and shares of headphone manufacturer Koss (NASDAQ:KOSS) jumped 38.29% to $4.37. Surely, it’s not mere happenstance that these were all meme-stock stars in 2021.
When you’re a short-term trader just seeking to flip these stocks for a fast profit, I say, “Have at it.” Alternatively, should you’re a serious investor who looks at the entire company and never just its stock, there’s loads to think about, and you could find some compelling reasons to remain out of the fray.
Fundamentals, schmundamentals
The basics of GameStop, AMC Entertainment and the others didn’t have much relevance on Monday as there weren’t any company-specific catalysts to push their share prices higher. Earnings season is generally finished (although GameStop remains to be expected to report on June 5), and April’s Consumer Price Index (CPI) print won’t be released until Wednesday.
If the businesses’ financials had been relevant, then the short-squeeze traders should have picked more promising corporations to deal with. For instance, GameStop’s fourth-quarter net revenue decreased to $1.794 billion, versus $2.226 billion within the year-earlier quarter. Moreover, the retailer’s money and money equivalents declined from $1.139 billion as of Jan. 28, 2023, to $921.7 million as of Feb. 3, 2024.
As for AMC Entertainment’s fundamentals, the movie-theater chain owed roughly $4.5 billion in long-term debt as of Dec. 31, 2023. Furthermore, AMC Entertainment’s revenue declined barely from $954.4 million in Q1 2023 to $951.4 million in Q1 2024. Moreover, the corporate recently disclosed its sale of 72.5 million AMC shares to lift “recent equity capital,” thereby raising the problem of share-price dilution.
Nonetheless, fundamentals weren’t top of mind in the course of the speculative fervor of 2021, when Reddit users and other traders short-squeezed these same so-called “stonks” to dizzying heights. After all, the financial-market landscape was quite different in 2021, when inflation and rates of interest were comparatively low. Let’s see what prompted this week’s retail-trading renaissance.
ValueWalk contributor Dave Kovaleski did a superb job of summing up Monday’s madness, through which Redditor and meme-stock guru Keith Gill resurfaced on social-media platform X after a multi-year absence:
Evidently, this text-less posting was enough to spur chatter about whether Gill, often called “Roaring Kitty” on X, would return in full form to spearhead one other meme-stock rally. Nonetheless, because the market is all the time forward-looking and everybody desires to leapfrog ahead of everyone else, short-term traders just went ahead and bid up the aforementioned meme-stock prices — with or without Gill’s assistance.
As of 11 a.m. Eastern on Tuesday, GameStop stock had soared 60% from the prior day’s closing price, while AMC Entertainment stock had skyrocketed 80%. Meanwhile, Koss stock had rallied 33%.
An unexpected group of winners
Generally speaking, it was the revenge of the small caps on Tuesday morning. The Dow Jones Industrial Average (DJIA) and S&P 500 (SPX) were nearly flat for the day, however the Russell 2000 (RUT) was up by a full percentage point. GameStop and AMC Entertainment don’t really qualify as small caps, but the general sentiment favored corporations perceived as downtrodden underdogs.
Besides small caps, the opposite winners on Monday and Tuesday were, of all things, solar stocks. Just to supply a few examples, SunPower (NASDAQ:SPWR) stock popped 64% on Tuesday morning while Maxeon Solar Technologies (NASDAQ:MAXN) was 52% above its closing price on the day past.
There’s no point in attempting to determine why Reddit users and other short-term traders could have targeted solar stocks for brief squeezes. Unless you’re within the inner circle amongst these meme-stock big shots, I don’t recommend attempting to guess the “next” GameStop stock.
In other words, there might be newly minted meme-stock millionaires, but you most likely won’t be one among them. Just have a look at how the story ended the last time around, with the most well-liked meme stocks losing significant value in 2022, 2023 and early 2024.
I can’t imagine this go-around having a more favorable resolution than the previous ones. At the top of the day, prudent investors could be higher off sticking to time-tested principles and specializing in fundamentally solid businesses. Otherwise, you could find yourself on the losing end of an exhilarating but largely irrational pop-and-drop cycle.