The glory days of the meme-stock phenomenon appear to be over. The heady days of 2021 when these names skyrocketed 30 or 40 times and stayed elevated for many months at a time appear to be long gone. On June 2, the leader of the meme-stock movement, Keith Gill, aka Roaring Kitty, revealed that he had $211 million of GameStop (NYSE:GME) stock and options and then scheduled an appearance on YouTube to discuss the company’s outlook. The shares subsequently spiked to around $46.50 from their previous level of about $26.50. But on June 7, they were back down to $27, and on July 11, they closed at $25.57.
The episode suggests that anyone who buys meme stocks now has to be ready to quickly sell them on any spike, while any speculator who purchases meme stocks while they’re elevated can lose a great deal of money. Also importantly, it’s possible that Roaring Kitty sold all of his GameStop shares and options during last month’s spike and will return to the hibernation that he underwent between 2021 and May 2024.
If Roaring Kitty does avoid the spotlight again, meme stocks may not rebound sharply for years and could generally keep falling going forward. With that warning in mind, here are three meme stocks to sell.
Chewy (CHWY)
Earlier this month, Roaring Kitty disclosed that he owned 9 million shares of pet e-commerce company Chewy (NYSE:CHWY). However, the shares actually fell sharply in the immediate wake of the investor’s disclosure.
That dynamic suggests that Roaring Kitty cannot boost CHWY stock going forward.
Also negatively for CHWY stock, investment bank Argus on July 9 downgraded the name to “hold” from “buy.” Among the reasons for the move are declines in the company’s user base, the stock’s high valuation, and Argus’ belief that the retailer will have to invest a great deal to support its upcoming foray into Canada.
America’s economic slowdown could also hurt Chewy’s, Argus warned. All of these negative catalysts make me view CHWY stock as one of the meme stocks to sell at this point.
With CHWY stock changing hands at a very high enterprise value-to-EBITDA ratio of over 50 times, Argus is right to be concerned about the retailer’s valuation.
Also negatively for the company, 52% of consumers surveyed by investment bank Evercore ISI recently reported shopping at Chewy’s, down from 64% in 2022.
GameStop (GME)
In May and June, GameStop sold $3 billion of its GME stock. Not only will all of those new shares put a great deal of downward pressure on the share price, but the company’s rush to sell so many of its shares amid the meme-stock revival indicates that it’s not very confident in its own outlook. And speaking of a lack of confidence, I have not seen any evidence of GameStop CEO Ryan Cohen, who’s also a billionaire and the largest owner of GameStop stock, buying the company’s shares this year.
Meanwhile, many speculators are probably holding GME stock in the belief that Roaring Kitty will make another appearance, sparking another brief rally in the name. But as I mentioned in the introduction to this column, it’s entirely possible that Roaring Kitty sold all of his GME stock and the options that he held on GameStop. It’s also possible that he will, emulating his modus operandi from 2021 to May 2024, stay out of public view for years to come.
Finally, as I noted in a past column, GameStop’s business model is broken.
AMC (AMC)
AMC’s (NYSE:AMC) shares only rose about 20% during June’s meme-stock rally, suggesting that the name is not going to benefit a great deal from any resurgence by the category going forward. And as I pointed out earlier in this column, such a resurgence may not occur, since Roaring Kitty may have sold his GME stock and options and could choose to remain silent for many years.
On the fundamental side, AMC on May 9 issued a negative announcement about its second-quarter results. Specifically, the movie theater owner stated that its Q2 financial performance may be meaningfully weaker than during the same period a year earlier.
The company blamed the weakness on strikes lowering the number of film releases last quarter. But continued, negative, structural issues plaguing the U.S. movie theater business are likely as much or more to blame for the company’s poor performance as strikes.
Indeed, in Q1, attendance at the company’s U.S. theaters sank 5.8% versus the same period a year earlier to 30.5 million, while its revenue fell 0.3% year-over-year.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.