The rise and fall of meme stocks have reached a somber turning point,calling for a requiem. Companies that once captivated an enthusiastic following from social media traders, such as GameStop, are now grappling with significant challenges. The video game retailer, which experienced a staggering surge of over 685% in 2021, has seen its shares plummet nearly 35% this year.
As GameStop prepares to announce its latest results, expectations point to a quarterly loss of $84 million and a modest sales growth of 4.5% compared to the previous year. Moreover, reports suggest that the company is undergoing a round of layoffs, potentially exacerbating its struggles. Despite attempts to reach out, GameStop was unavailable for comment.
However, GameStop is not the sole victim of this meme stock decline. Other favored picks, initially sought after for their potential to disrupt hedge funds and opposing investors, have also encountered adversity. AMC, the movie theater chain, has seen its shares drop by 55% this year. Additionally, the new preferred class of AMC stock, symbolized by “APE” as a nod to its loyal social media fanbase, has experienced a dramatic decline of over 90% from its peak price.
AMC continues to face financial losses, and the theater industry as a whole remains challenged. Box office revenue remains significantly lower than pre-pandemic levels, with Hollywood releasing fewer blockbusters while audiences increasingly opt for streaming services from the comfort of their homes. Other theater chain stocks, including Cinemark, Marcus, and IMAX, have also suffered declines this year.
Another casualty in the meme stock saga is Bed Bath & Beyond. The struggling retailer briefly gained hope when Ryan Cohen, GameStop chairman and Chewy co-founder, took a stake in the company. This led meme stock enthusiasts to anticipate a potential turnaround. However, Cohen’s subsequent share sell-off in August dashed those hopes, causing Bed Bath & Beyond stock to decline by 75% this year.
The waning popularity of meme stocks can be attributed to various factors. The pandemic-induced surge in day trading, fueled by stimulus checks and individuals seeking entertainment at home, has diminished as the economy recovers. With the unemployment rate down to 3.7% from its peak of 14.7% in 2020, fewer people are confined to their homes and are gradually returning to offices.
Moreover, investors are beginning to recognize the genuine challenges faced by companies like GameStop, AMC, and Bed Bath & Beyond. Fundamentals such as earnings, sales, and overall performance hold significance, particularly in an economy that exhibits signs of weakness.
Matt Smith, investment director with Ruffer, advises caution, stating that despite the decline in meme stocks, equities still carry risks, and true bargains are scarce. He suggests that shorting stocks (betting on price declines) presents better opportunities than long-term investments in the current climate.
Ultimately, investors are becoming more aware that uncertain times call for safer plays rather than high-stakes gambles on meme stocks. The era of speculative stock craze appears to be drawing to a close, as market participants recognize the importance of considering a company’s fundamentals in an evolving economic landscape.
Written by:
Dana Sterling-Editor
