Meme stocks like AMC Entertainment and GameStop get their price spikes from exceptional buying interest. But those sudden and sporadic gains are unpredictable — not to mention risky.
AMC announced its fourth-quarter results on Feb. 25. Sales rose to $1.3 billion, above estimates of $1.29 billion while a loss of 18 cents per share met views. Shares soared in after-market trading but fell the next day.
Still, Benchmark analyst Mike Hickey noted that AMC's strengthening balance sheet and "favorable content slate for 2025" are points to note.
AMC and GameStop are known for volatile movements associated with meme stocks. However, both stocks have lagged their key moving averages for several weeks now. Shares fell further as President Donald Trump's tariffs went into effect. Are meme stocks a buy or sell now?
Investor's Business Daily's ratings on IBD Stock Checkup and chart analysis tools hold some vital clues while earnings and growth data on IBD MarketSurge shows a company's quarterly performance.
Shares of GameStop jumped on Feb. 10, rebounding from the 200-day moving average. The stock rose after GameStop Chief Executive Ryan Cohen posted a picture of himself with MicroStrategy CEO Michael Saylor.
MicroStrategy is the largest corporate holder of bitcoin. The Twitter/X post set off speculation that GameStop may be considering a bitcoin move.
AMC Stock Falls On $184 Million Stock Sale
GameStop undercut its 50-day moving average on Jan. 14 as shares plunged 10%. Shares also fell below their 21-day exponential moving average for the first time since third-quarter results were announced on Dec. 10.
Meanwhile, AMC fell on Jan. 21 after the company disclosed that it had made an at-the-market offering to sell $183.8 million of stock, before commissions and fees, at a price of $3.68 per share. Chief Executive Adam Aron tweeted that it was to raise cash reserves.
Short interest is running on the high side for AMC. Based on a simple calculation using IBD MarketSurge data, short interest for AMC is 8.8%.
A higher short interest can result in a spike in the stock price, should sellers try to exit their short positions by buying the stock.
Spot Bases And Buy Points With Pattern Recognition
The meme stock has IBD Ratings that are well below ideal levels. The Composite Rating is just 33.
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.
'Roaring Kitty' Ignited Meme Frenzy
GameStop jumped after meme investor Keith Gill, also known as "Roaring Kitty," posted the image of a gift on Twitter/X on Dec. 25. Many investors took Gill's post as a cue to look at GameStop stock again.
GameStop has a short interest of 7.3%.
Earlier, on Dec. 5, the meme investor posted on Twitter/X an image of a mocked-up Time Magazine cover with a blank computer screen and keyboard.
AMC jumped nearly 6% after the post, but fell 9% the next day, after the movie theater company announced an agreement to sell 50 million shares, according to a filing with the Securities and Exchange Commission.
GameStop reported its third quarter results on Dec. 10, a key event for meme traders. Sales of $860 million on a loss of 6 cents per share missed analysts' estimates of $887.7 million in revenue and a loss of 3 cents per share. Still, shares jumped more than 8% the next day.
The company also stated that it plans a "comprehensive store portfolio optimization review which involves identifying stores for closure based on many factors including an evaluation of current market conditions and individual store performance." The review may result in more store closures than in the past few years as GameStop seeks to attain what it calls "sustainable profitability."
During the quarter, the company also entered a new business and started providing autograph authentication for trading cards at some of its stores.
GameStop's Risky Trading
GameStop's volatility is cause for caution. For one thing, volatile movement provides little opportunity for well-formed bases.
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Further, the stock is down more than 70% from its all-time high of 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 56, reflecting weak chart action and fundamentals.
Meme Stocks Rally In May
Meme stocks rallied in May after 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.
AMC quickly gave up its gains after the movie theater company on May 15 announced an equity swap to exchange 23.3 million newly issued shares for bonds worth $163.9 million maturing in 2026.
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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 2023.
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 1.60 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.
Meme Stocks 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. But short interest can also lead to erratic spikes that have no underlying cause.
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.
It is better to bring a time-tested method for stock picking and search for buy points in proper bases.
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