It’s been a wild ride for the pair. GameStop (NYSE: GME) is still up over 600% year-to-date (YTD) and its brother in arms, AMC (NYSE: AMC), has an even more impressive YTD return of more than 900%. GameStop and AMC fell 13% and 15%, respectively, on Monday, December 13, 2021, as investors look to balance portfolio risk and move capital into safer long-term investments.
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GameStop and AMC
Everyone on the planet has surely heard the murmurs of these two and the Wall Street shenanigans by now. But, for those unaware, GameStop is the classic brick-and-mortar video games retailer that has now pivoted to online, and AMC is a U.S. cinema chain that has been around for decades.
GameStop added world-class leadership to enact its pivotal strategy by hiring Chewy co-founder Ryan Cohen — an expert in e-commerce — as well as ex-Amazon chief growth officer Elliot Wilke, but efforts still seem to be falling short of expectations.
Why are investors selling?
The turnaround story is fading. GameStop has missed analyst estimates in three out of its last four quarterly reports, and although AMC has made a rebound over the last year, pandemic woes mean that foot traffic is still well below the levels the companies were used to prior to the onset of COVID-19.
The short-squeeze narrative just doesn’t really fit the bill anymore — both companies have already seen a meteoric rise — so it’s no surprise that valuations are beginning to come back down to reality.
The overall market is taking a hit following the euphoric appreciation of growth stock valuations over the last year and inflationary concerns are beginning to creep in and spook investors. So naturally, meme stocks are taking the hit too as speculators exit their positions and move the capital to safer assets.
Although the companies may have been undervalued in the depths of the pandemic, these speculative frenzies in the market will always come and go. As far as the future is concerned for the gruesome twosome, there could be a lot more pain to come.
As the COVID-19 epidemic subsides, we may see a bounceback in their business models, but I’m struggling to see any catalysts that could contribute to a continuous growth trend to make viable long-term investments here.
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