The heady days of 2021 may be over, but the phenomenon that turned AMC and GameStop into meme-stock darlings still rears its head from time to time
It may be a couple of years since the meme-stock feeding frenzy hit its heights, but we're still seeing occasional bursts of meme-like activity in number of stocks.
GameStop Corp. $(GME)$, for example, saw a meme-like rally ahead of its third-quarter earnings earlier this month, and other companies this year have seen spells of meme-style buzz, from small-cap Chinese stocks to electric vehicle maker Mullen Automotive Inc. (MULN) and chip maker GSI Technology Inc. $(GSIT)$. So what can we expect to see in 2024?
No discussion of meme stocks would be complete without OG AMC Entertainment Holdings Inc. $(AMC)$. But while the movie theater chain and original meme stock darling still grabs plenty of attention, it no longer fits the bill of a meme stock, according to Alicia Reese, VP of equity research at Wedbush. "AMC has seemingly lost its meme status, its share price having come crashing back down to earth over the past several months, particularly since its APE fold-in and reverse stock split," she said. "AMC is now trading at a more normalized valuation, even if still at the high-end of its pre-meme historic range."
AMC shares are trading at $6.70, a far cry from their high of $393.63 on June 2, 2021, during the meme-stock frenzy.
"AMC's premium valuation here is driven in part by a sub-section of the shareholders it gained during its meme stage, who have remained loyal to the company and have long claimed to be AMC shareholders for life," Reese added. "AMC shed all the rest of its meme-era shareholders and are now left with the lifers, along with some institutional shareholders now that valuation has come back to a more normalized range."
The analyst thinks that in 2024, AMC will continue to issue pre-authorized shares to pay down its high-debt balance, as evidenced by the $350 million equity offering completed this week. "The company is focused on right-sizing the balance sheet, while attempting to maintain strong relations with the AMC lifers still propping up the stock," said Reese.
Fellow original meme stock GameStop has also been in the news recently, with the company's board of directors approving a new investment policy, which lets the company invest in equity securities, among other investments. The board also gave Chairman and Chief Executive Ryan Cohen the authority to manage the investment portfolio. The new policy was dubbed "alarming" and "inane" by Wedbush Managing Director Michael Pachter.
"If he can invest in anything - farmland, chicken feed, cryptocurrency - that's not in the best interests of the shareholders," he told MarketWatch. "Heaven knows what he will do."
As for GameStop, the analyst describes the videogame retailer as a declining business, pointing to the company's third-quarter revenue of $1.078 billion, which was down from $1.186 billion in the prior year's quarter. "They are shrinking, period, and they can't save their way to prosperity," he added.
The company's new investment policy could also fuel more meme-style activity, according to Pachter, who says that Cohen's moves will be closely watched. "He will invest in something and it will possibly become the next meme stock," the analyst told MarketWatch.
Pachter pointed to Cohen's decision in 2022 to unload his huge stake in beleaguered home goods retailer and sometime meme stock Bed Bath & Beyond Inc. just months after buying it. In August of that year Cohen sold his entire stake in Bed Bath & Beyond five months after accruing the stake in an activist campaign, amassing a profit of more than $58 million.
Stocktwits, a social platform for investors and traders, told MarketWatch that it has seen a dedicated core audience of retail investors stick with the likes of AMC and GameStop. "Message volume and sentiment have remained elevated on the platform throughout the year, with their audiences growing temporarily around earnings or other events that create volatility," said Tom Bruni, senior writer at Stocktwits, told MarketWatch.
Retail traders are still on the lookout for high-volatility situations, according to Bruni, who cited the example of Vietnamese electric vehicle stock VinFast Auto Ltd. (VFS), which had a "crazy month" in August before crashing back down. "However, we would note that there have been fewer instances of these types of meme stocks occurring this year, and their lifespan tended to be pretty short," he added.
"For stocks with the 'meme' potential in 2024, look to beaten-down areas of the market that already have strong retail investor communities around them," Bruni told MarketWatch. "Several that stick out are electric vehicle stocks (specifically startups), solar stocks, or anything China-related. Traders will likely be looking for stocks at the intersection of these themes, like Lucid Group ($LCID), as potential 'powder kegs' for volatility in 2024."
One thing is for sure - the social media dynamics that created the meme stock phenomenon are not going away. "Internet culture will continue to be more prevalent in markets as the world becomes more digitized and young people age into participation," Tommy Tranfo, head of community at Stocktwits, told MarketWatch. "Crypto markets are an area where we expect to see a large concentration of this activity, particularly within the context of a crypto bull market, which will likely bring in a new wave of market participants who will skew toward the internet culture demo."
"New crypto meme communities such as the $BONK (a dog-themed coin on the Solana blockchain) are already clear examples of this craze taking place," he added.
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