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Meme stocks are roaring again. This time may be different
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What are Meme Stocks?
Meme stocks refer to the shares of companies that have gained a following among retail investors on online networks and social media platforms such as Reddit, Stocktwits, Twitter, and Facebook.
The meme stocks favored by retail investors usually have the following narrative:
（1）The company's fundamentals are weakening, and the stock price is languishing;
（2）They are heavily shorted by hedge funds;
（3）However, there are recent signs of a turnaround in adversity.
When a stock becomes a hot topic on social networks, it attracts retail investors to buy in frenzy, driving the stock price to surge dramatically in a short period. This creates another meme stock.
The characteristics of meme stocks' prices can be summarized as follows:
（1）They are extremely popular on social media.
（2）The stock price fluctuates super fast in the short term. Compared to traditional stocks that might see annual gains of 30% to 50%, meme stocks can experience similar gains within hours or days.
（3）These stocks lack solid business fundamentals, performance, or prospects, so their prices can be severely overvalued after a rapid increase.
WHAT ARE THE RISKS OF JOINING IN?
It’s important to know the momentum can shift just as suddenly the other way. It took just four weeks in 2021 for GameStop’s stock to go from less than $5 to more than $120. But it has yet to touch that price again. Even after its big jump in recent days, GameStop shares can still be bought for less than $50.
Or, just look at Tuesday’s trading. GameStop quickly more than doubled in the morning, topping $64, before paring much of the gains in afternoon trading and regressing to $48.75.
HOW DOES THAT COMPARE WITH 2021?
It’s not as big. On Monday, investors pumped a net $15.8 million into GameStop, along with $37.5 million into AMC, according to data from Vanda Research. That compares with $87.5 million and $170 million, respectively, in 2021.
Meme-stock companies have more shares trading in the market than they did in 2021, which could lessen the chances of what’s called a “short squeeze,”
A short squeeze is a relatively rare event that can yield eye-popping profits for people riding the wave. When investors bet a stock’s price will go down in the future, they “short” it by borrowing shares and selling them. Later, if the price does indeed fall, the short sellers can buy the stock, return the borrowed shares and pocket the difference.
But when a highly shorted stock rises in price quickly, short sellers could scramble to get out of their trades. They can do that only by buying shares of the stock, which can set off a self-feeding cycle that makes the price shoot even higher.
GameStop in March had roughly 305.9 million shares of its stock trading in the market, more than four times the number of shares it had in March 2021. Such growth “greatly increases the amount of activity needed to squeeze higher” for GameStop and other meme stocks, it’s going to be a tougher task this time around.
Taking GME ( $GameStop (GME.US)$) as an example, as of the end of April, its short interest ratio is 21.02%. Is this ratio high or low? Compared to non-meme stocks, this ratio is relatively high, because most meme stocks have weaker fundamentals and typically have a short interest ratio between 10% and 20% throughout the year. However, compared to the peak of the meme stock frenzy in 2021, this ratio is not that high. Back then, GME even experienced short interest ratios of over 100%.
Therefore, looking at the current short interest ratio, it may not be easy to replicate the frantic speculation of that year.
Who Will Be the Next GME?
If you are considering investing in meme stocks but are unsure how to identify those with potential, short interest data can be a valuable tool in making investment decisions.
Short interest data is one of the important indicators for analyzing stocks, as it can help investors gauge the market sentiment and potential performance of a particular stock. Investors who are bullish might track short interest data to avoid stocks that may have a downward price trend; those interested in a short squeeze can seek out stocks with a high short interest ratio, uncovering investment opportunities.
The following chart lists companies in the Russell 3000 small-cap stock index, all with a market capitalization of over $50 million and a short position of more than 30%:
The chart below shows the stocks with the highest short interest in the S&P 1500:
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
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72973431 : im sure everyone in the world would find that interesting as well
KessXYZJ : what are your thoughts on how long this meme stock bull run well last?
Carter West OP KessXYZJ : less than 1 week...
KessXYZJ Carter West OP : Just right