CNBC’s Jim Cramer advised investors to get out of meme stocks like GameStop and AMC, which experienced significant rallies this week largely driven by social media hype. Cramer criticized the irrational exuberance around these stocks, noting that there is no reason for them to reach such high levels on their own. GameStop and AMC saw their shares surge by more than 70% on Monday, following an online post by “Roaring Kitty,” the individual involved in the GameStop short squeeze earlier in 2021.
Cramer expressed his views on the valuation of both GameStop and AMC in comparison to their peers. He pointed out that GameStop is overvalued when compared to electronic retail giant Best Buy, despite similar market capitalizations after GameStop’s recent surge. Cramer highlighted the disparity in earnings between the two companies, noting that Best Buy’s earnings in 2023 are significantly higher than GameStop’s, even though Best Buy’s earnings have been declining. In Cramer’s opinion, GameStop is simply overvalued.
In contrast to GameStop, Cramer believes AMC’s situation is more dire. Despite securing $250 million in funding as its stock price skyrocketed, Cramer warned that AMC could face financial difficulties in the future. With over $2 billion in debt due by 2026, he described AMC as a “dead man walking.” Cramer advised investors to sell their AMC shares before the company reaches a critical financial tipping point, emphasizing the potential risks associated with holding onto the stock.
GameStop and AMC have yet to respond to requests for comment on Cramer’s remarks. Investors who are interested in following Cramer’s market moves can join the CNBC Investing Club. The CNBC Investing Club Charitable Trust holds shares of Best Buy, a company that Cramer believes has a stronger business model than GameStop.
Cramer’s analysis of the meme stock frenzy underscores the importance of rational investing decisions based on fundamentals rather than speculative hype. While GameStop may be overvalued compared to its peers, AMC’s financial challenges raise concerns about its long-term viability. Investors should carefully consider the risks and rewards associated with investing in volatile stocks like GameStop and AMC, taking into account factors such as earnings, debt levels, and overall market conditions. By staying informed and making sound investment choices, investors can better navigate the unpredictable nature of meme stocks and other high-risk investments in the market.
