Meme stocks like AMC and GameStop get their spikes from strong buying interest. But those sudden and sporadic gains are as unpredictable as they are risky.
Buying stocks just because they are rallying is a poor strategy. It is better to bring a time-tested method for stock picking and search for buy points in proper bases. Reading their charts can show the risks involved.
GameStop and AMC are known for volatile movements associated with meme stocks. But are meme stocks a buy now?
Shares of AMC have been struggling below the 50-day moving average for weeks. The stock rose on Monday when the movie theater company revealed that it had slashed $153 million in unsecured debt in August and September. On Tuesday, those stock gains vanished.
In July, the company refinanced and extended $1.6 billion in debt maturing in 2026 to 2029 and beyond. FactSet estimates suggest that AMC holds a total of $4.5 billion in debt.
Second-quarter results on Aug. 2 did not help AMC stock, either. Sales of $1 billion declined from $1.3 billion in the previous year while a loss of 43 cents per share showed a steeper loss from a loss of 4 cents a year ago.
On Dec. 19, AMC announced that it was issuing 3.3 million shares to an undisclosed buyer in exchange for $25 million in subordinated notes, a form of debt, that will come due in 2026. The private offering values the stock at 7.47 per share.
The stock got a boost in September 2023 after the company completed a move to sell 40 million shares at an average price of $8.14, raising $325 million.
The meme stock has IBD Ratings that are well below ideal levels. The Composite Rating is just 9.
Panning out for a longer view, IBD MarketSurge's monthly chart highlights the wild swings that are typical of meme stocks. From a split-adjusted closing price of 11.49 on Dec. 31, 2020, AMC shares hit an all-time high 393.65 on June 2, 2021. That's a gain of 3,326%. But the stock has crashed since then.
GameStop Reports Earnings Surprise
GameStop's second-quarter sales of 798 million were 31% lower than the prior year's $1.16 billion. Sales also declined from the first quarter's $881.8 million. But earnings of 1 cent per share reversed a 3-cent per share loss. Analysts expected a loss of 8 cents per share on sales of $895.7 million.
Shares fell 3% ahead of the earnings announcement on Sept. 10 and plunged another 12% afterward, sending the stock below the 50-day moving average.
Ahead of its first-quarter earnings in June, shares rallied 47% only to reverse 39% lower after sales declined 29%. A loss of 12 cents per share was a slight improvement from the year-ago period.
GameStop's volatility is cause for caution. For one thing, volatile movement provides little support for well-formed bases and buy points.
Further, the stock is down more than 75% from its all-time high 120.75, reached in January 2021.
Going back further, the video game retailer grew an investor fan base in late 2020 at the height of the meme-stock frenzy. By January 2021, the meme stock shot up 1,625% to 81.25, then crashed to 9.63 the very next month.
Investor's Business Daily recommends stock picks based on strong fundamental performance and chart action while also paying attention to the market and managing risk.
GameStop has an IBD Composite Rating of 66, reflecting weak chart action and fundamentals.
Meme Rally In May
Dramatic movements are common in meme stocks like GameStop.
Meme stocks rallied in May after meme investor Keith Gill posted on X for the first time since the pandemic. AMC soared as much as 308% May 13-14 and GameStop gained 271% to the peak of the same two-day period. But today those gains have vanished almost entirely.
Robinhood Markets benefited from the spike in retail investing while favored meme social media site Reddit also rose.
AMC quickly gave up its gains after the movie theater company announced an equity swap to exchange 23.3 million newly issued shares for bonds worth $163.9 million maturing in 2026.
Top Financial Soars, Comes Back Down
Top Financial was a perfect example of meme stock volatility. The stock skyrocketed in one day from 48.60 to 256.44 on April 28, 2023 — a 428% gain. It quickly crashed and traded for under 10 by May.
Top stock came public on the Nasdaq in June 2022. The initial offering priced at $5 per share for 5 million shares. Shares popped on the first day of trading, reaching a high of 27.50.
The stock rallied more than 50% in early May last year in meme-like action, then reversed gears and fell more than 70% in a single day. Shares have trended even lower since.
The stock is trading around 1.80 a share now. It surged 65% on Feb. 9 and was back to its usual trading range the next day. There was no news on the company.
The Hong Kong-based fintech generates revenue through commissions on trades of equities, futures and options. Its Composite Rating stands at 12.
Is A Meme Stock A Buy Now?
A meme stock is a speculative play, known for high levels of unpredictability because it can rally or crash in any market, and at any time. Its meteoric rises and heart-stopping crashes typically depend on social media hype and online interest.
Hyper stock valuations for these companies depend, for the most part, on young fans and an anonymous following that can appear or disappear overnight. Retail investors dominate the interest in these stocks.
These stocks do not follow traditional investment wisdom, which says you should buy stocks based on earnings growth and performance. As such, they are extremely speculative.
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