Meme stocks like AMC Entertainment and GameStop get their price spikes from exceptional but sporadic buying interest. But those sudden gains are unpredictable — not to mention risky.
AMC will report its first-quarter results on May 7. Analysts project a loss of 59 cents per share on a sales decline of 12% to $837 million, according to MarketSurge. Are meme stocks a buy or sell now?
Meme Stocks: Analysts Turn Positive On AMC
Despite losses in the recent eight quarters, analysts were bullish after AMC released its fourth-quarter results on Feb. 25. Sales at the movie theater chain rose to $1.3 billion, above estimates of $1.29 billion. Its loss of 18 cents per share met views. Benchmark analyst Mike Hickey said AMC's strengthening balance sheet and "favorable content slate for 2025" are points to note.
AMC stock is prone to volatile movements. 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.
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The meme stock has IBD Ratings that are well below recommended levels. The Composite Rating stands at just 40. Shares are treading below the 50-day moving average.
Crypto Hype Boosts GameStop Stock
The volatility in meme stocks was also seen when buyers lifted GameStop after the videogame retailer, along with its quarterly results on March 26, said it was adding bitcoin as a Treasury reserve asset.
Though sales dropped 28% to $1.28 billion, earnings jumped 36% to 30 cents per share. GameStop stock soared more than 10% before reversing sharply lower the next day.
More Meme Action: 'Roaring Kitty' Ignited Frenzy
Retail investors also moved GameStop stock 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.
Earlier, on Dec. 5, the meme-stock 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 company announced an agreement to sell 50 million shares, according to a filing with the Securities and Exchange Commission. The stock has lagged the 50-day moving average for several weeks now.
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, GameStop shares are 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 72, reflecting weak chart action and fundamentals.
Meme Stocks Rally
Meme stocks rallied in May 2024 after Gill posted on X for the first time since the pandemic. AMC soared as much as 308% on 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 advance after it announced in mid-May 2024 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 14.
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.
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.
It is also better to bring a time-tested method for stock picking and search for buy points in proper bases.
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