What Happened
In January 2021, one of the most dynamic stories of the stock market’s past decade occurred. A movement of retail traders took on large hedge funds and short-sellers in several stocks of well-known companies.An appearance by Citron Research’s Andrew Left on Benzinga YouTube highlighted a short position in shares of GameStop and a call that shares were overvalued. WallStreetBets and several trading groups took on Left with a flood of messages in the live video chat and purchases of shares to attempt to cause a short squeeze.
The price of GameStop soared throughout January and February 2021, going to a high of $483.
Other popular retail stocks called “meme stocks” also soared as investors piled into stocks that had a heavy amount of short interest.
What’s Next
Despite a significant drop in the prices of GameStop and AMC Entertainment from highs, research firm New Constructs is calling for more downside in a report.“The valuation of some of the most popular meme stocks, especially GameStop and AMC Entertainment remain untethered from reality,” the research firm said.
New Constructs said meme stocks hold “unnecessary risk” for investors.
“We don’t see a problem with paying a premium for a company producing strong profits, but none of the meme stocks are producing strong profits.”
Investors are paying more attention to profits and valuations in 2022 versus 2021, according to the research firm, which it said could soon impact the price of meme stocks.
“Meme stocks like GameStop and AMC Entertainment remain dangerously overvalued and don’t generate anywhere near the profits necessary to justify their current valuations.”
The research firm points to a potential downside of 59 percent for GameStop shares, calling the company a “lagging brick and mortar retailer.”
Efforts to enter the NFT and cryptocurrency space for GameStop and AMC Entertainment are brushed aside by the research firm as doing little to change the underlying fundamentals of the business.
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