What a great day it was for GameStop action (GME) – Get GameStop Corp Class A Report and its investors. In the late afternoon on Tuesday, the stock of the popular game trader rose more than 30% in a single session.
Could this be the start of another Melt-Your-Face rally? Will traders and investors revisit the golden days of 2021 as GME went up to blow peaks of over $ 300 per share?
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GME: smells like meme mania
Whether GameStop investors even appreciate the term “Meme Mania” or not, today’s price action suggests that this is exactly what has happened in recent days.
The March 22 spike is just beginning to tell the story. Since the March 14-year-to-date end of $ 78 per share, the GME stock has climbed an astonishing 55% plus in just six trading sessions.
The last time a strong rally took place in such a short period was in June last year, during the last “Meme Attack”. GME shares have almost doubled to over $ 300 in four weeks.
Basically, little more than a mixed-branch earnings report delivered last week justifies March 2022 bullishness. It certainly “smells” like another meme-style move higher, which could still be good news for GME investors.
Are the basics good?
As I explained last week, GameStop’s performance was not that stellar.
To be fair, the trader delivered fiscal Q4 revenue growth of 6%, which, although modest, raised expectations by two percentage points. The small collection business seems to be doing well, and software has managed to stay afloat.
However, the hardware remains a disappointment, with growth rates of only 2% looking deep in the last quarter. This is particularly disappointing due to the early innings of a video game console cycle that lasted for many months, if not years.
Part of the problem seems to be the disruptive supply chain challenges that have been a blow to hardware sales and margins. They are unlikely to be resolved in the near future.
Monkeys take over
As suggested in the title of my recent income review, and due to the lack of exceptional financial performance, I believed it was “up to the monkeys” to support GME stock price through enthusiasm and optimism. And that’s what seems to be happening. My Quote:
“Maybe none of that [i.e., business fundamentals] will not care if enough demand for the stock continues to exist, driven by unprotected HODLer optimism that the path that brings GME stocks ‘to the moon’ has not yet been cut.
According to Ape Wisdom, GME (with a long run) is the most popular ticker on Reddit today: 10 times as many mentions as Peer AMC stock (AMC) and almost 70 times as many upvotes.
Momentum alone, driven by online forum discussions, could be the main force behind the recent rally at GME. The meltdown could even accelerate when FOMO (Fear of Missing Out) leads other traders to open up and bid on the price of the GameStop stock.
The scenario looks even more promising when elevated short-term interest rates of 25% are taken into account. The figure, provided by Yahoo Finance and reflecting late February positions, may have reached even higher levels before GameStop earnings day.
In addition, Seeking Alpha reported on the potential of a gamma-squeeze. This could be the result of an increased demand for exceptional calls to GameStop shares.
Yes, GME could go to the moon again. But remember that anything can happen in the “meme world”, including a sharp correction – something that took place even after the impressive 2021 rallies.
So, a word of caution is never unjustified: traders and investors should also consider not only the potential rewards, but also the risks they face when buying shares here.
(Disclaimer: This is not an investment advice. The author may be one or more stocks mentioned in this report. The article may also contain affiliate links. These partnerships do not affect editorial content. Thank you for your support of Wall Street Memes)
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