Many meme stocks belong to companies with weak performance or uncertain outlooks. When retail investors coordinate through social media, they can create sudden demand that forces short sellers to buy back shares, causing a short squeeze. Although I have a neutral stance on GME stock, the outperformance of the video game retailer’s shares over the last year has been impressive. The meme stock movement has encouraged more people, especially younger retail investors, to learn about the stock market, trading psychology, and risk management. This broader participation has made investing more accessible and engaging. A meme stock, by contrast, follows a speculative stock movement driven by popularity rather than performance.
One of the main reasons I’m on the fence about GameStop’s outlook is the sheer unpredictability of events in 2024. The company’s journey has been so unconventional that it’s nearly impossible to assume the company’s success or failure based solely on its fundamentals. With Narratives, you link the company’s story to a financial forecast and then to a fair value, helping you visualize how your viewpoint translates into actual numbers. This tool is designed to be accessible for everyone and is available right inside the Community page on Simply Wall St, where millions of investors share their perspectives. Generally, higher PE ratios can be justified by stronger expected earnings growth and lower perceived risk, while lower PE ratios might reflect slower growth prospects or higher risk.
We took it for granted that we could walk into any of the stores and buy some products. However, the coronavirus has taught us the value of appreciating every minute we have. Most people decided to take on home improvement projects to use the time on their hands due to the lockdown. As a result, besides relying on walk-in customers, Lowe’s online sales went up significantly. By June 2020, the stock had doubled, and it was predicted that it was only a short-term hike.
A long-time financial journalist, Dan is a veteran of MarketWatch, CBS MoneyWatch, SmartMoney, InvestorPlace, DailyFinance and other tier 1 national publications. As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange. When it comes to playing around with high short interest stocks, unless you are uncommonly lucky, let’s just say the risks greatly outweigh the rewards. With the stock now trading north of $23, Palantir is up over 260% over the past year.
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The rise of meme stocks shows how connected retail traders can influence prices on a global scale. This crowd-driven market behavior has become a structural factor that analysts now track seriously. This mix of passion, humor, and speculation can lead to hype-fueled price swings that make meme stocks both fascinating and dangerous. They represent a new wave of volatility-driven investing, where online trends can trigger unpredictable stock rallies within hours.
The stoppage further led to the stock decreasing from almost $500 to $150 before going up and down again. If these stocks are to suffer the same fate as GameStop, holding onto them could be for immediate wealth, not for future investment since they are bound to decline. The plan to turn GameStop into a holding company could be a huge success or a major failure. In fact, one of the reasons why Roaring Kitty made it clear he was buying GME stock again last year was because the investment thesis was a bet on Ryan Cohen and his management team. The key point here is that these projections are less meaningful, given that GameStop is likely to invest part of its huge cash balance in investments in other spheres, far from its core business. Apparently, Ryan Cohen wants to turn GameStop into a holding company.
Risks for traders
- Retail investors from platforms like Reddit’s r/WallStreetBets rallied behind GameStop, catapulting its stock price from under $20 to over $500 per share at its peak.
- Instead, it took until March 7 for the firm to retroactively announce in its annual report that its share count had risen over five-fold.
- You can spot a meme stock when trading volume and price jump sharply without business news.
- Perhaps ironically, around the same time the stock started to rally, Beyond Meat announced a new distribution partnership with Walmart.
Over the years, GameStop adapted to changing consumer habits, expanding into collectibles and technology brands to offset declining physical game sales caused by the rise of digital downloads. Now, it’s worth noting Stock Advisor’s total average return is 1,072% — a market-crushing outperformance compared to 194% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors. GameStop was the original meme stock and still has a sizable percentage of individual investors.
- Allen Lee is a Toronto-based freelance writer who studied business in school but has since turned to other pursuits.
- However, Huawei is reportedly being pushed out of the market due to security concerns.
- For buyers, prices can collapse just as fast when momentum fades.
- The outlook seemed bleak, with weak earnings and a lack of catalysts on the horizon.
Cohen’s net worth has gone up by $90 million per day in the last few weeks when GameStop’s stock has skyrocketed by over 1,550%. Another shareholder, Donald Foss, who had the foresight to buy 5% of its shares for $12 million, has seen his stock’s worth rise to $500 million. Of course, anyone who has witnessed the stock’s meteoric rise since last year must be wondering which other companies are great to invest in currently. Let’s take a look at the top stocks that might pique your interest. However, with the renewed excitement surrounding the stock, GameStop’s management smartly took advantage of the situation by raising capital through an equity offering.
The Power of Timing in a Global Market
Other names like Bed Bath & Beyond, BlackBerry, and Nokia briefly joined the movement, showing how quickly viral stocks could rise and fade. The meme stock definition generally refers to a stock whose demand is fueled by online attention rather than fundamentals. Before Roaring Kitty’s return in May, GameStop had just over $1 billion in cash and short-term investments. The company had been gradually depleting that amount since Fiscal 2023 when it had nearly $1.4 billion on its balance sheet.
Meme Stocks vs Traditional Stocks
This event, fueled by a mix of nostalgia, financial rebellion, and speculative trading, shocked Wall Street and solidified GameStop’s place in financial history. Although GameStop is currently a cash-rich company, its sales have been shrinking, and profits have only emerged through aggressive cost-cutting measures. That said, any chance of a more positive 2025 outlook for the company from a business fundamentals point of view will involve CEO Ryan Cohen taking action with the company’s balance sheet. While there is no clear plan for this, the stock should be trading, as usual, based on speculation and broad market euphoria, resulting in high volatility.
Increased Market Participation
Meme stocks exist because the market has become as social as it is financial. Platforms like Reddit, TikTok, and X turned investing into a viral investing trend, where community excitement can move prices faster than news or data. You never know the value of something until you no longer have it and that is what happened to Lowe’s.
The company has kept top-tier auditor Deloitte & Touche since 2013 and frequently updates shareholders in its detailed earnings calls. CEO Matt Furlong is refreshingly straightforward about GameStop’s prospects. In GameStop’s case, activist investor Ryan Cohen promised a corporate overhaul to refocus the retailer on e-commerce and other non-mall-based activities. For a brief moment, it seemed as if GameStop could relive its glory days of Free signals for trading forex growth… whether in Web3 gaming or non-fungible tokens (NFTs). And as for Troika, the Converge merger would turn negative profits into positive ones as soon as merger costs flowed through.
Extreme Volatility and Big Loss Potential
As per the article, although the surge in GameStop stock could drop anytime and not have any real effects on the economy, if Nokia share price hiked, it could have drastic consequences. The reasoning is that Nokia is among the leading global players in the European market’s telecom industry. However, Huawei is reportedly being pushed out of the market due to security concerns. The company issued a statement saying it cannot explain the 70% surge it was experiencing. It had reason to be worried because barely a week after the unexplained surge, the share price plummeted from $9.79 to $6.55.
The projections show aggressive early growth, rising by 28.6% in 2026 and then gradually slowing to about 4.1% annual growth by 2035. While analysts typically only offer guidance for the next five years, further numbers are extrapolated to give a fuller long-term view. The 2023 film Dumb Money dramatized its short squeeze saga, highlighting the tension between everyday investors and Wall Street institutions. Chris Morris is a former contributing writer at Fortune, covering everything from general business news to the video game and theme park industries. Rich Duprey has written about stocks and investing for the past 20 years. On the other hand, GameStop has been relatively clear about its finances and business outlook.
They are companies that pick up a following in internet chatrooms or social media and take off from there. From a trading perspective, Troika Media had around 21 million shares sold short at the end of February, a 72% short interest ratio. That’s roughly the same as GameStop’s elevated 88% figure in January 2021.
She has managed finance departments in brokerage firms, supervised master’s theses, and developed professional analysis tools. As long as online communities exist, there will be room for social media stock surges tied to collective excitement. Allocate no more than a small percentage of total capital to speculative stock movements that rely on online sentiment. While the rest of us are toiling day and night to make ends meet, some people like GameStop’s largest shareholder, Ryan Cohen, are increasing their net worth by $4 million per hour.