As I write this (Oct. 30), Beyond Meat stock has already fallen from an intra-month high of $3.62 to $1.66. Using GameStop and AMC Entertainment as case studies, let’s break down what’s influencing the stock — and, more importantly, explore how investors can navigate these uncharted waters. Analysts have largely thrown up their hands when it comes to the company, which no longer holds analyst calls or offers guidance.
Approach 2: GameStop Price vs Earnings (PE) Analysis
(To be fair, I also gave a 40% chance that Troika “runs off with all our money” and would be worth zero). This disconnect is what causes stock prices to deviate from fundamentals, a core risk every trader must understand. A short squeeze happens when many traders bet a stock will fall and are forced to buy it back as the price climbs.
Should beginners invest in meme stocks?
- The biggest force behind this movement was traced to a forum on Reddit called r/wallstreetbets.
- Using GameStop and AMC Entertainment as case studies, let’s break down what’s influencing the stock — and, more importantly, explore how investors can navigate these uncharted waters.
- As I write this (Oct. 30), Beyond Meat stock has already fallen from an intra-month high of $3.62 to $1.66.
- But right now, I think the parallels with each of these companies are quite clear.
- In March 2020, they were trading at $2.31, but they have gone down to $2.26.
- This sense of unity fuels participation and reinforces trading psychology factors tied to confidence and identity.
Both sides face uncertainty and rapid reversals typical of meme stock volatility. Short selling happens when traders sell borrowed shares, expecting the price to fall so they can buy them back cheaper. If the price rises instead, short sellers lose money and may need to close positions. Covering these shorts adds buying pressure and pushes prices up even more.
Emotional Trading Traps
Look for sudden spikes in social media mentions and online discussions; key signs of crowd-driven trading. A clear meme stock example is GameStop (GME), whose price surged in 2021 after going viral on Reddit’s r/WallStreetBets. AMC Entertainment (AMC) followed soon after, fueled by online hype rather than company fundamentals.
- 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.
- At the same time, the projections for the bottom line are profitability in Fiscal 2025, at 0.07 cents earnings per share (EPS), and breakeven in Fiscal 2026.
- Meme stocks can skyrocket for weeks, only to crash once the online buzz fades, a clear example of emotion overpowering evaluation.
- GameStop is one of the founding members of the meme stock movement.
- New waves of online traders occasionally revive interest in struggling companies, proving that this isn’t a one-time event but a recurring stock market buzz trend.
- What followed was a period of casino-like gamification as retail investors fueled pronounced volatility in the most unsuspecting stocks.
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But everything changed in May, thanks to Keith “Roaring Kitty” Gill, the social media trader who played a key role in the massive short squeeze in GME stock back in 2021. His influence once again sparked a turnaround in the share price of GameStop. In the 2010s, GameStop faced significant financial hurdles, including mounting losses due to store closures and reduced demand for physical media. By 2020, its prospects seemed bleak, exacerbated by the COVID-19 pandemic. However, in early 2021, the company became a focal point of the stock market through a historic short squeeze. 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.
Lately, though, their faith in Cohen and the company has seemingly been dwindling. Shares fell 20% Thursday after GameStop announced a bond sale of $1.75 billion. The company introduced a new AI platform that customers are flocking to. Meme stocks can double overnight, and lose it all the next day. This volatility-driven investing creates opportunities but also exposes traders to rapid losses. AMC Entertainment soon followed, fueled by the same crowd-driven behavior.
Online communities create a sense of unity and shared purpose, giving retail investors a platform to exchange insights and challenge institutional narratives. Not everything about meme stocks is negative, there’s a reason investors are drawn to them. Online communities can coordinate thousands of small trades that collectively move the price. Each viral post fuels buying pressure, creating a feedback loop between crowd-driven market behavior and price action. Cancer cases are on the rise, with ten million people dying every year from the disease.
Set stop-loss levels to cap downside exposure and use trailing stops to secure profits as the rally extends. Prices rarely reflect actual company performance, so predicting direction becomes nearly impossible. Hedge funds holding large short positions had to buy at any price, triggering a runaway rally. One of the biggest mistakes an investor can make is Forex harmonics to simply follow a crowd.
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A meme stock’s lifespan is usually short; days or weeks at most. Once online attention fades, trading volume drops, and prices often return to levels aligned with company fundamentals. You can spot a meme stock when trading volume and price jump sharply without business news.
This shift explains what causes stock prices to deviate from fundamentals. When collective sentiment takes over, logic often loses excitement. Meme stocks can skyrocket for weeks, only to crash once the online buzz fades, a clear example of emotion overpowering evaluation. Meme stocks tend to prompt consternation and confusion among normie market participants, but then that’s just part of the fun. While a lack of interest in looking at fundamentals still appears to be a guiding force, some companies that are considered meme stocks today do possess good fundamentals. The following three meme stocks are companies that shouldn’t be ignored.
Wall Street investors mostly recommend buying the Lowe’s shares, and even if it is the main competitor of Home Depot, they insist that Lowe’s is a better buy for now. After all, people are still stuck at home, and those projects they have been putting off for so long will continue to grow, making it a profitable company. His return reignited excitement and sparked a “fear of missing out” (FOMO) rally among retail investors and traders on social media. The hype was enough to send GME stock soaring nearly 400% from its low in April to a peak in mid-May. GameStop is one of the founding members of the meme stock movement. These are stocks that exhibit pronounced increases for reasons independent of sound fundamentals, but rather driven by hype narratives native to online communities.
In early October, filings revealed that Beyond Meat was gearing up for a convertible bond deal. A move like this could indicate that the company was under liquidity pressures and needed to raise cash quickly. Specifically, he noticed that short interest in GameStop’s public float was well above 100%.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. GameStop’s future hinges on its ability to navigate a fine balance between honoring its legacy as a gaming retailer and transforming into a modern, tech-forward enterprise. Success will require continued innovation, efficient management, and a deep understanding of gamer and consumer needs.
This performance has been driven largely by unpredictable, meme-stock-related events, which is why I maintain a neutral stance on the stock. My personal view is that investing in the stock market is not a guessing game. The Discounted Cash Flow (DCF) model estimates a company’s worth by projecting its future cash flows and discounting them back to today’s value. This approach is especially useful for businesses whose cash flows can be reasonably forecasted and provides an intrinsic value based on fundamental performance rather than market sentiment.
It takes into account GameStop’s growth outlook, profitability, risk factors, market cap, and how its business stacks up within the sector. This tailored approach offers a clearer sense of what a “normal” PE ratio should be for GameStop specifically. Collectibles, such as Pokémon and baseball cards, made up 29% of the company’s sales in the first quarter—outselling video game software, GameStop reported earlier this week. Of course, because SMCI stock is a meme stock, the gains are amplified.
