The idea of a stock skyrocketing nearly overnight is not new – ask a biotech investor. However, the meme stock phenomenon is unique in a few ways: the rallies (1) seem fueled almost exclusively by momentum that comes out of online discussion boards, (2) often happen after heavy shorting activity, and (3) are almost never grounded in business fundamentals.
The birth of “meme mania” can probably be traced to one trend-setter: GameStop stock (GME) - Get GameStop Corp. Class A Report. Today, Wall Street Memes revisits the story of this company and stock that have already made history in the markets in 2021.
From struggler to rock star
GameStop is about as ordinary a company as one can find. The Texas-based retailer primarily sells video gaming hardware, games and collectibles. It operates nearly 5,000 physical locations around the world, many of them located at struggling shopping malls spread all over the US.
Most remember GameStop stock climbing nearly 2,000% to its all-time high in the month of January 2021 alone. But GME shares struggled during the previous 12 years, starting with the Great Recession, as did the business itself. In 2007, the stock was valued at a high of $62 before losing 96% of its market value by March 2020.
Fundamentally, GameStop had been facing enough challenges to put its own existence at risk. By late 2019, even before last year’s pandemic, the company’s revenues, margins and earnings had been crumbling. During the thick of the COVID-19 crisis, GameStop appeared doomed to bankruptcy.
But under the surface, a volcano had been bubbling. By the start of 2021, 70 million shares of GameStop were shorted – roughly 100% of the float. The slow climb in share price over the following couple of weeks caused a snowball effect known as a “short squeeze”, and meme mania was born.
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Back to the top?
Shortly after GME shares reached their peak of $347, on January 27, the stock collapsed to $40 by February. While the meme frenzy took a break around mid-first quarter, some believed that GME shares would never see their glory days again.
But in June 2021, meme stocks returned to the forefront. GME shares, as of the writing of this paragraph, had already risen to $230 – a 475% gain from the February lows. The stock is now “only” 34% off the previously unimaginable January peak, valued at a 2023 P/E of 160 times!
Could GameStop find its way north of the $300 mark soon? Only time will tell. But one thing seems clear: meme mania is alive and well, and GME’s journey to the moon may be far from over.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)