The broader market has surged back toward all-time highs while the Reddit frenzy that propped up the prices of some of Wall Street’s most heavily shorted stocks subsides, and top meme stocks GameStop and AMC are posting massive losses as a result.
After plunging 60% Tuesday and Wednesday, shares of GameStop are plunging an additional 30% Thursday (as of 11:30 a.m.), wiping out nearly two weeks of monster gains and pushing the firm’s market capitalization down to $4.5 billion from a closing peak last Wednesday of $24.3 billion.
The losses are piling on after Bank of America analyst Curtis Nagle said in a Thursday note to clients that dwindling online conversation, short interest and daily trading volume in GameStop shares should contribute to prices reverting back toward levels backed by fundamentals.
Nagle noted that GameStop’s lofty valuation would make sense with annual cash flow (or earnings before interest, taxes, depreciation and amortization) of nearly $2 billion–not the loss of $65 million the firm posted in its fiscal 2020.
In a move that could help spur the turnaround Reddit traders on the WallStreetBets discussion board have been hyping up, GameStop announced Wednesday it has tapped a former Amazon Web Services engineering lead, Matt Francis, to take on the newly created role of chief technology officer; despite the recent plunge, shares are still up about 435% over the past month.
Shares of embattled theater chain AMC Entertainment, which jumped 14% Wednesday after a $700,000 investment from Barstool Sports founder Dave Portnoy, are now down about 60% of over the past week, though monthly gains remain at an eye-popping 350%.
Much of the other meme stocks are also still well above pre-frenzy levels despite abruptly plunging this week: After surging close to 100% in January, both Bed Bath & Beyond and BlackBerry are now down about 50% from those peaks.
“GameStop is no where near worth what it was trading at but it’s a perfect example of the greater fools theory where it’s possible to make money on something if it’s overvalued so long as there’s someone willing to pay a higher price,” investment guru Jeremy Siegel, a finance professor at the Wharton School told Forbes last week. “I hope that these [Reddit] investors can be turned into long-term investors where the odds are actually for you and not against you. We want to get them on the side of investing rather than speculating, because you don’t need to speculate to make money in the market.”
Despite the massive losses, GamStop shares are still up more than 265% over the past month. Current prices of about $64 remain about five times as much as the average one-year price target for shares of $13.40 among eight analysts issuing such guidance.
What To Watch For
GameStop’s next quarterly earnings report is tentatively slated for March 25.
What We Don’t Know
How regulators will respond to the Reddit-fueled volatility. Treasury Secretary Janet Yellen will meet with the heads of the Securities and Exchange Commission, Federal Reserve and other regulators Thursday to discuss the recent volatility in those Reddit-fueled meme stocks. “We really need to make sure that our financial markets are functioning properly, efficiently and that investors are protected,” Yellen said Thursday on Good Morning America.