Analyst says meme stocks AMC and GameStop to see more pain

Analyst says meme stocks AMC and GameStop to see more pain

  • AMC Entertainment Holdings and GameStop Corp. were among the most popular meme stocks last year, with prices driven up by retail buyers

  • GameStop is miles off its 2021 peak of $483, while shares of AMC Entertainment are similarly off the highs of $72.62.

Shares of “meme stocks” GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Inc. (NYSE: AMC) are down roughly 36% and 44% year to date after a brutal few weeks in the markets.

While the stocks saw a huge bounce on Friday, an analyst says the sell-off witnessed since the market frenzy of 2021 isn’t over for these stocks.

He predicts more pain amid investor pivot into profitable companies or other investment niches like metaverse and NFTs.

No profits and “untethered from reality”

Meme stocks exploded onto the scene in 2021, rallying to massive heights alongside Bitcoin and other cryptocurrencies. As crypto has tanked, the stocks have tumbled too- with more losses to come according to analysts.

David Trainer, the CEO of investment research firm New Constructs says GameStop and AMC are set for more selling, with the companies unlikely to be profitable over the next two years.

Trainer explains that investors might look elsewhere for profitable deals as they steer away from stocks that put portfolios at the unnecessary risk of devastating declines.

According to the analyst, while investors might want to look at the valuation of companies they invest in versus their profitability, the metric doesn’t really apply to most meme stocks.

He notes that investors are likely to see no problem in paying a premium to get an investment in a company with strong profits. Pointing out GameStop and AMC Entertainment as two of the most popular, he said the two have valuations that “remain untethered from reality.”

Meme stocks like GameStop and AMC Entertainment remain dangerously overvalued and don’t generate anywhere near the profits necessary to justify their current valuations,” he added.

Potential investment trends to see more inflows as investors continue to rotate out of meme stocks are metaverse and NFT linked companies.

Wall Street targets for GME and AMC stocks

The GameStop stock closed at $97.91, up 4.8% on Friday while AMC shares traded up 3.7% to $15.06. While positive on the day, a look at the monthly logs shows the extent of the stocks’ declines.

Data from MarketWatch shows GME is down 69% in the past twelve months, while AMC is sharply down year to date at -44% to cut yearly gains to just 13%. Over the past 30 days, GME prices are down nearly 37% as AMC’s have shed nearly 48%.

Wall Street has an average price target of $8.17 for AMC Entertainment, representing a 45.75% downside from current levels. 

TipRanks also shows that 4 analysts have an average price target of $34.00 for GME, suggesting an expected 65.27% drawdown from Friday’s close of $97.91.

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