What happened
Shares of GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) Thursday was up 52% and 21% respectively, allowing them to recoup a significant portion of their recent losses.
And then
GameStop’s stock lost a third of its value on Wednesday after the video game store’s fourth-quarter revenue and operating profit fell short of Wall Street’s expectations. Analysts were also upset that GameStop didn’t provide much insight into its digital transformation plan and declined to answer questions during its earnings call.
AMC Entertainment also fell sharply earlier this week after that news Walt Disney would make two of its upcoming movies available on its popular Disney + streaming service the same day they hit theaters.
Traders got back into GameStop and AMC Entertainment on Thursday. Image Source: Getty Images.
Some investors apparently thought the sale was excessive. Bulls no doubt got courage in Jefferies Financial Group’s massive price target hike for GameStop’s stock. Analyst Stephanie Wissink more than increased her price prediction tenfold from $ 15 to $ 175. Wissink stated that GameStop would successfully transition its operations from its brick-and-mortar stores to a primarily e-commerce model, while also seizing opportunities in esports and collectibles.
However, it should be noted that GameStop hired Jefferies to assist with a potential stock offering. Jefferies also owns a significant portion of GameStop stock. Still, investors are bidding GameStop’s stock up to $ 183.75, or within about 5% of Jefferies’ new target price.
Seeing GameStop rally has also likely boosted sentiment for AMC among merchants on Reddit and other social media sites. Many individual investors have been trying to coordinate their stock purchases on these sites in recent months, contributing to violent price swings in GameStop, AMC, and other so-called meme stocks – companies whose stocks have been hyped on the Internet – both up and down.
What now
By bidding their stocks so sharply, investors are betting that GameStop and AMC will not only survive but thrive in a post-pandemic world. Yet GameStop’s stores still face an existential threat from video game downloads, while fast-growing streaming services like Disney + threaten the long-term survival of AMC’s theaters. So despite today’s rally, both GameStop and AMC remain high-risk investments.
This article represents the view of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are variegated! Questioning an investment thesis – even one of ours – helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.