The meme stock mania, which took the stock market by storm last year, returned earlier this year, with a few fundamentally weak stocks witnessing skyrocketing short-squeeze rallies.
However, since the unusual rallies have nothing to do with the companies’ fundamentals, these stocks failed to sustain their high price levels.
The stock market has recently witnessed a rare respite from the bear trap on the back of positive investor sentiment based on initial earnings surprises and hopes of the Fed going easy with future interest rate hikes. However, since the macroeconomic headwinds that have tipped the economy into the bear market are intact and set to intensify, this optimism might be short-lived.
Better-than-expected employment report and hot inflation numbers for September would allow the Fed to respond with another aggressive interest rate hike in November. This is expected to induce increased volatility in the market.
Amid an uncertain market outlook, avoiding so-called short-squeeze stocks, GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC) could be wise.
GameStop Corp. (GME)
GME leverages its e-commerce properties and stores to offer games, entertainment products, and technology. The company operates through four geographical segments: United States; Canada; Australia; and Europe.
For the second quarter of the fiscal year 2022 ended July 30, GME’s net sales decreased marginally to $1.14 billion. During the same period, the company’s adjusted operating loss widened by 106.6% year-over-year to $106.2 million, while the adjusted net loss worsened 94.7% to $107.1 million.
As a result, the quarterly adjusted net loss per share widened 84.2% year-over-year to $0.35.
Analysts expect GME’s loss per share for the current fiscal year (ending January 2023) to widen 20.5% year-over-year to $1.37. The company is also expected to report a net loss during the next fiscal year. Furthermore, it has missed the consensus EPS estimates in three of the trailing four quarters.
Although the stock has gained 6% over the past month, it has plummeted 29.7% year-to-date to close the last trading session at $26.87.
GME’s POWR Ratings reflect its bleak outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
GME also has a grade of F for Stability and a D for Growth, Momentum, and Sentiment. It is ranked penultimate among 45 stocks in the Specialty Retailers industry.
Click here for additional POWR Ratings for GME’s Value and Quality.
AMC Entertainment Holdings Inc. (AMC)
As a theatrical exhibition company, AMC owns, operates, and has interests in theaters in the United States and worldwide. The Company operates through two segments: U.S. markets and International markets.
On October 20, AMC’s Subsidiary Odeon Finco PLC announced that it had completed its private offering of $400.0 million aggregate principal amount of 12.750% senior secured notes due 2027 at an issue price of 92.00%. Exposure to expensive debt in a rising interest rate environment may hinder the company’s bottom-line growth.
For the second quarter of the fiscal year 2022 ended June 30, AMC reported an operating loss of $16.10 million. During the same period, the net loss attributable to AMC came in at $121.60 million, translating to a loss of $0.24 per share.
Analysts expect AMC’s loss per share for the fourth quarter of the current fiscal year (ending December 2022) to widen 72.7% year-over-year to $0.19. Additionally, the company is expected to keep reporting losses over the next two fiscals.
The stock has declined 13.2% over the past month and 74.6% year-to-date to close the last trading session at $6.75.
Due to its weak performance, AMC has an overall rating of D, which translates to a Sell in our POWR Ratings system. It also has a grade of F for Stability and a D for Sentiment.
AMC is ranked last among five stocks in the F-rated Entertainment – Movies/Studios industry.
To see additional POWR Ratings for Growth, Quality, Value, and Momentum for AMC, click here.
GME shares were trading at $25.61 per share on Wednesday afternoon, down $1.26 (-4.69%). Year-to-date, GME has declined -30.97%, versus a -18.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
2 Short Squeeze Stocks You Should Avoid StockNews.com
