The headlines during the early throws of the first trading quarter in 2021 were dominated by the GameStop frenzy. Now, more heads are turning towards another Reddit-driven stock that has skyrocketed thus far in 2021 – AMC Entertainment.
2021 is a year that has thus far been marked by volatile trading, with Reddit users egging each other on to fuel a stick-it-to the man style trading battle between retail and professional traders. GamStop, was of course the most notable, but it has also been joined by Sundial Growing and AMC Entertainment.
Executives of AMC Entertainment sold literally zero stocks in 2020, but that has changed dramatically in the first quarter of 2021 trading. At one point in January, AMC stocks were selling for over ten times their year-end price, having shot up 400% over the past year.
On April 1st, AMC shares dropped 5.1%, currently trading at $9.58. Why? Investors have reacted negatively to the company’s proposed plans to try and issue more shares to raise more capital. The fear of the possibility of further dilution has resulted in a knock-down.
GameStop, AMC Entertainment and others like it have coined the term ‘meme stock’ – the latest buzzword to break into the financial trading vernacular. The term ‘meme stock’ is used to refer to a stock that’s popular with millennial and Gen Z retail traders thanks to social media encouragement.
In the case of GameStop and AMC, the Reddit thread WallStreetBets was single-handedly responsible for driving the popularity and price of the short sold stocks in a bid to make billionaire hedge funds lose money.
While GameStop took a surprising uptick towards the end of March and is still trading surprisingly high, AMC Entertainment looks to be fading away. Sundial Growers, another so-called ‘meme stock’ looks to have plateaued somewhat, but also looks less volatile overall than the two aforementioned stocks.
As for the next craze, Roblox was the most recently pitched Reddit stock that’s currently seeing some volatile trading activity. Between March 26 and April 1, Roblox stock has risen and dropped as much as 10.47%, almost spiking and then dropping on a daily basis.
We can’t likely know what the next real meme stock craze will be, or if it’s a concept that’s likely to start petering out from here on in.
The short answer? No – meme stocks are generally best avoided. By their very name and nature, the price of meme stocks is driven by social media-influenced hype, rather than any form of concrete market projections or underlying credentials.
Some People did get rich from the GameStop craze, but they were few and far between – and they were a shrewd bunch who knew what they were doing. Basically, meme stocks provide great entertainment, but are a poor investment.