No matter if you were a spectator or a participant in the topsy-turvy meme stock fervor of 2021, the market resembled the Wild West, full of chaos, unpredictability, and rampant emotions.
Chief among them was GameStop (GME), which emerged as the darling of the meme stock saga, rocking the market to its core with a short squeeze of historic proportions.
Alongside, other stocks like AMC Entertainment (AMC) added to the nightmare for short-sellers, sending shockwaves through the investing landscape with extreme price fluctuations.
And much to everyone’s “surprise,” the meme stocks are back, resurging from the shadows. Let’s delve deeper into this frenzy.
The Return of Roaring Kitty
Keith Gill, famously known as Roaring Kitty, played a leading role in the initial meme stock uproar in 2021, redirecting attention towards short sellers. The frenzy resulted in a monumental short squeeze in GameStop shares, amplifying the pain for short-sellers in other heavily shorted stocks like AMC Entertainment.
After a lull in the excitement over time, ‘Roaring Kitty’ reappeared on social media recently, breaking a prolonged silence. Meme stock aficionados responded fervently, triggering intense volatility in GME shares.
GameStop’s Current Position
GameStop released its quarterly results today, revealing a significant drop in sales compared to the previous year. Post the announcement, pressure mounted on GME shares, aggravated by a $75 million at-the-market offering.
The company’s prospects have dimmed, now carrying a Zacks Rank #5 (Strong Sell). The recent surge is primarily fueled by a short squeeze, detached from the company’s current earnings outlook.
Image Source: Zacks Investment Research
Parting Thoughts
When heavily shorted stocks start ascending, it triggers a relentless cycle for short-sellers, compelling them to close their positions by repurchasing the borrowed shares. This results in substantial losses for shorts unable to cover their positions, while traders relish the rollercoaster of events.
This scenario mirrors the 2021 episode involving meme stocks such as GameStop (GME) and AMC Entertainment (AMC).