GameStop and AMC are experiencing their second consecutive day of declines, as the meme-stock frenzy that reignited earlier this week begins to fade. GameStop's shares plunged as much as 20% on Thursday, while AMC fell by 12%. The early-week surge, driven by meme traders, quickly lost momentum, wiping out much of the $11 billion in market value that the stocks had gained. Matthew Tuttle, CEO of Tuttle Capital Management, highlighted the inherent volatility of such stocks, noting that their elevated prices can't be sustained without continuous new investment. This recent downturn echoes the wild swings of early 2021, when retail traders, spurred by figures like Keith Gill, aka "Roaring Kitty," propelled GameStop and AMC to unprecedented heights. A post from Gill's account on Sunday helped spark this week's volatility, though the movements have been more subdued compared to the dramatic spikes of 2021. Market Overview: -GameStop (GME) and AMC Entertainment (AMC) experience a second day of declines, erasing gains from the earlier meme-stock frenzy. -This volatility echoes the 2021 phenomenon but lacks the extreme highs witnessed back then. Key Points: -Both stocks shed value after retail investor enthusiasm waned, highlighting the absence of fundamental support. -The surge was triggered by a post from social media personality "Roaring Kitty," but momentum proved unsustainable. -GameStop remains unprofitable and trades at an exceptionally high valuation compared to earnings. Looking Ahead: -The recent price swings suggest a more cautious approach among meme stock traders compared to the past. -The long-term viability of these companies remains questionable, and their valuations are likely to remain volatile. -This episode underscores the inherent risks associated with speculative trading based on hype. This week's swings, while impactful, have not matched the intensity of the 2021 meme stock saga when GameStop shares soared over 1,600% in January alone. Despite the current activity, GameStop has not reclaimed those historic highs. The company's financial outlook remains challenging, with analysts predicting it won't turn a profit until the holiday quarter. As of Wednesday, GameStop traded at more than 1,200 times its expected 12-month forward earnings, making it the highest among US-listed stocks with market capitalizations over a billion dollars, according to Bloomberg data. AMC has leveraged the recent surge to strengthen its financial position, completing an at-the-market equity offering and negotiating a private deal to swap shares and reduce its debt. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, warned that while valuations remain artificially inflated, the sharp one-day declines serve as a stark reminder of the risks associated with speculative trading.
GameStop & AMC Decline as Meme-Stock Rally Loses Steam
Quiver Quantitative -
Thu May 16, 2024
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