The return of “Roaring Kitty” caused a significant increase in GameStop shares on Monday, leading to a buying frenzy among amateur traders. However, the speculative rally in the unprofitable company is likely to end badly once again. GameStop, a brick-and-mortar video game company, has faced challenges such as job cuts and declining revenue. Analysts like Michael Pachter believe that the stock price surge is not based on any fundamental factors, with GameStop expected to continue losing money in the future. Pachter has an underperform rating on GameStop and a price target of $5.60, significantly lower than Monday’s peak of $38.20.
During the meme stock craze of 2021, GameStop shares reached an all-time high before collapsing along with other meme names when interest from individual investors waned. The recent resurgence of meme stocks like GameStop comes at a relatively quiet time in the broader market. With the first-quarter earnings season winding down and the next Federal Reserve policy meeting about a month away, the market has been relatively stable. However, the revival of the meme stock craze could pose a potential risk to the broader market, which is already fragile due to shifting expectations for interest rates.
Despite not being involved in the GameStop trade, Jeff deGraaf, chairman and CEO of Renaissance Macro Research, mentioned the possibility of taking advantage of the wild swings in meme stocks as a seller of overbought downtrends. He views GameStop as just another overbought stock in the market. The surge in animal spirits driven by meme stock trading could create further uncertainty in the market, prompting some analysts like Mark Schilsky of Bernstein to suggest that raising interest rates significantly may be necessary to address the situation.
The underlying fundamentals of GameStop as a company do not support the recent surge in its stock price, with ongoing challenges such as job cuts and declining revenue. Analysts like Michael Pachter remain skeptical about the company’s ability to turn profitable in the future, projecting continued losses. GameStop experienced significant volatility during the meme stock craze of 2021, reaching an all-time high before plummeting to a three-year low. The return of meme stock trading has once again propelled GameStop to new highs, raising concerns about the broader market’s stability.
The broader market is currently relatively stable, with the first-quarter earnings season coming to a close and the next Federal Reserve policy meeting on the horizon. However, the resurgence of meme stock trading poses a potential risk to market stability, particularly as interest rates remain a key point of uncertainty. Analysts like Jeff deGraaf are observing the meme stock craze but are not actively participating in it, viewing it as an opportunity to sell overbought assets. As the market continues to navigate the impact of meme stocks, it remains to be seen how regulators and investors will respond to this new wave of speculative trading.
