The company’s brick-and-mortar locations decreased worldwide by 9% in the last 12 months, which allowed the company to free up its cash flow. Hopefully, rightsizing its footprint could bring the company closer to profitability. “The past 25 years have witnessed a number of sharp short squeezes in the U.S. equity market, but none as extreme as has occurred recently,” Kostin wrote in the note, published on January 29. “In the last three months, a basket containing the 50 Russell 3000 stocks with market caps above $1 billion and the largest short interest as a share of float has rallied by 98%.” The result is something of a shakeup in the list of stocks with highest short interest, as measured by the percentage of shares outstanding sold short.
Could this turnaround pay off for investors?
Under the commonly accepted paradigm of Wall Street, many investors are able to thrive on the way the market is set up. However, for a glorious year in 2021, the burgeoning concept of Reddit stocks proved that, sometimes, https://forexbroker-listing.com/fxprimus/ the market can defy gravity. A big reason for that is how deeply hated GameStop’s stock was by hedge funds and other professional investors on Wall Street. Many were betting on GameStop’s stock to fall by “shorting” it.
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- It popped to close at $26.44 on Monday and has pulled back to $20.99 on Wednesday.
- It is even worse if you use the analyst’s $5.2 billion revenue estimate for 2022 as the company’s ratio is 2.3x.
- GameStop’s shares slumped by 40% in 25 minutes on Wednesday, after a few days of frenetic growth.
- To do that, they have to buy the stock, which pushes the stock even higher and can create a feedback loop.
- Second, Lottery.com entered the public arena via a reverse merger with a special purpose acquisition company.
Although a number of meme stocks remain, many have been replaced by more traditional short bets. When a stock is very heavily shorted, a rise in its price can force short sellers to get out of their bets. To do that, they have to buy the stock, which pushes the stock even higher and can create a feedback loop. As GameStop’s short sellers have gotten squeezed this month, smaller and first-time investors have been egging each other on to to keep the momentum going. GameStop’s exorbitant valuation is the result of the Reddit meme investors’ fixation on what has become a battleground stock between retail investors and hedge funds. The WallStreetBets investors don’t care about the company’s fundamentals but are focused on creating a short-squeeze to deliver their returns.
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Still, the rally of heavily shorted stocks has taken place against a “backdrop of very low levels of aggregate short interest,” he added, though noted there could still be significant losses for hedge funds. The situation was straight out of George Orwell’s Animal Farm. I guess when you’re dealing with Reddit stocks, it’s the profitability that matters. Then again, the same could be said about the very hedge funds the social media crowd targeted. Rising interest rates amid expectations for tighter monetary policy have hit growth stocks as a whole in 2022. But it has really clamped down on pricey high-short-interest meme stocks from last year.
Troika has yet to see a boardroom fight end in a hostile takeover. And TRKA stock shares have been non-compliant with Nasdaq listing requirements for far less time than beaten-down BBIG stock. Troika Media Group is an acquisitions company that can trace its roots back to Roomlinx, a Nevada-based firm founded in 1998. Over the years, the entity would purchase everything from broadband companies to brand consultancies.
Shares of the once stagnant gaming retailer skyrocketed due to the online community WallStreetBets collectively committing to buy and hold the stock in order to sabotage short sellers’ positions. Note that Heron Therapeutics (HRTX, $8.14) currently tops the list. That’s hardly unusual, however, and even something of a throwback to the pre-meme stock days. After all, biotechnology stocks with small market capitalizations have always been targets for short sellers.
The ad tech firm currently trades for a roughly $100 million market capitalization, valuing its shares at about 0.3X price-to-sales (P/S). That’s the same as GameStop’s valuation immediately before its short squeeze and about eight times lower than the average U.S. firm. In other words, it’s a siren’s call for deep-value investors looking for enormous returns. From a trading perspective, Troika Media had around 21 million shares sold short at the end of February, a 72% short interest ratio. That’s roughly the same as GameStop’s elevated 88% figure in January 2021.
And GameStop’s GME valuation at Wednesday’s close of $178.58 gives the company a market cap of $12.1 billion. Its market cap to revenue ratio (also using 2019 revenue) is 1.5x vs. the 0.15x as of December 31, 2020, less than four months ago. It is even worse if you use the analyst’s $5.2 billion revenue estimate for 2022 as the company’s ratio is 2.3x. Though many ideas undergirding fast-moving Reddit stocks have been predictable, it’s important to remember that no one market community is a monolith. Within the same social media thread, you’ll find ample discourse and debate. The volume of shares being traded had risen to 5.26 million as of this writing, with recent volume averaging about 3.8 million shares.
Critics used to dismiss the moonshots for GameStop and others as a sideshow, saying the excess was confined to a few corners of the market. Sharp losses for short sellers may have pushed them to sell some of their other stock holdings to raise cash, and several investors say that contributed to Wednesday’s 2.6% slide for the S&P 500. Using $50 million for 2022’s revenue, which could still be aggressive, makes the market cap to revenue ratio 62x. While this isn’t in the stratosphere, a lot has to go right just to support today’s stock price.
More than four million people are in it, usually discussing stocks and shares and where they’re going to invest money. Its surging stock price allowed management to raise enough cash to pay off all its long-term debt and have $1.78 billion in cash left over. GameStop’s most recent stock sale completed in June netted the company $1.1 billion for 5 million shares sold. And its debt levels are $424 million lower than the same time last year. Believing GameStop overpriced, hedge funds had “shorted” the company, betting the share price would fall.
Both firms would go on to experience short squeezes in their stock, an essential ingredient to getting retail investors excited. To their credit, social media investors have identified striking parallels between Troika Media and GameStop. And management at the two companies have engaged in startlingly similar financial restructuring plans. GameStop (GME 6.16%) is best known for its inclusion in the 2021 meme stock frenzy whipped up by Reddit investors.
What’s going on with GameStop’s stock doesn’t make sense to a lot of people. On the date of publication, Tom Yeung 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.
And far from being a failing, bricks-and-mortar gaming company, it is well placed to move into the digital space, where even a small part of the market would make it hugely valuable. But on Wednesday, the share price was approaching its January high. In February, the prevailing attitude on Wall Street was the share price was slowly finding its natural position. Nevertheless, WBX stock still has risk factors working against it. Mostly, the pensiveness centers on Wallbox being potentially overvalued against projected future cash flows.
In GameStop’s case, activist investor Ryan Cohen promised a corporate overhaul to refocus the retailer on e-commerce and other non-mall-based activities. For a brief moment, it seemed as if GameStop could relive its glory days of growth… whether in Web3 gaming or non-fungible tokens (NFTs). And as for Troika, the Converge merger would turn negative profits into positive ones as soon as merger costs flowed through. Last year’s meme stock trading frenzy might have come to an abrupt end in 2022, but the market remains rife with high-short-interest stocks that could be ripe for a short squeeze.
For over a decade the company has sold stock every year to cover its operating losses. Using 2019’s revenue to remove any Covid-19 impact and the current market cap of $3.1 billion, the company’s market cap to revenue ratio is 1,077x. I’m probably going to get trashed for mentioning Corsair Gaming as a possible big play among Reddit stocks in 2022. Over hycm the trailing one-year period heading into the first weekend of the new year, shares plummeted exactly 47%. Undoubtedly, some folks in the social media crowd jumped on CRSR stock last year, likely prompting negative feelings. The irony, though, is that committing such acts ruins the ecological balance that organically promotes harmony in nature.
In the investment market, short trading is necessary, in part to weed out underperformers from accruing any more capital from unsuspecting or unsophisticated investors. Furthermore, short trading may facilitate holistic price discovery, thus potentially mitigating wild peaks and valleys. A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
He also linked to the Wall Street bets forum, where he’s lovingly referred to as Papa Musk. The Tesla boss loves a tweet – and when he does, financial worlds tend to take notice. This one-word entry was enough to further send GameStop’s price soaring. Imagine you borrow some Pokemon cards from a mate, because you think the price of them is about to drop, and agree to give them back in a month.
The Motley Fool has no position in any of the stocks mentioned. “They seem hell-bent on taking on Wall Street, they seem to hate hedge funds and threads are peppered with insults about ‘boomer’ money. If your bet was wrong and the price actually rises instead of falling, you’d lose money. This is a massively simplified explanation of something called shorting, or short selling – words you might’ve seen cropping up in your feeds in the last few days. If you’re sure the company will lose value, you’d make a profit when you buy them back and the price has fallen.
What I do like about the underlying company is that it plays into the EV revolution; specifically, through the production of smart charging and energy management solutions for your home and ride. Still, the meme-trading phenomenon that started with GameStop may continue throughout the new https://forex-review.net/ year, even if GME stock itself is starting to look long in the tooth. With that in mind, here are other possible ideas for Reddit stocks that could be the next big thing. Biotechs figure prominently on the list, and certainly some of last year’s meme stock favorites continue to hang on.
However, it’s also possible that virtual currencies won’t collapse like other bubbles in market history. Because of the mainstream attention that this recent rally (that’s probably about to end) generated, it’s possible that the sentiment may have reached critical mass. From now on, people may have a permanent interest in cryptos, irrespective of the digital market’s valuation. The other reason why Corsair appears too obvious is how bearish the market is on CRSR stock. As of the latest read (Dec. 31, 2021), CRSR features a short percentage of float of 36.6%.
Obviously, the core products enhance the progression and viability of clean transportation. Second, ample research points out that millennials and Generation Z care about sustainability — and many put their money where their mouth is. Plus, it might not hurt that MARA features a short percent of float of 20.4% (though its short ratio of 1.7 is quite low).
Enthusiasm has grown for GameStop’s prospects after the company said earlier this month that a co-founder of Chewy, the online seller of pet supplies, was joining its board. Investors see Ryan Cohen helping GameStop’s digital transformation. But analysts still expect GameStop to keep losing money in its next fiscal year. Tom Yeung is a market analyst and portfolio manager of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He is the former editor of Tom Yeung’s Profit & Protection, a free e-letter about investing to profit in good times and protecting gains during the bad. My initial assessment of Troika assumed that the firm would act in good faith to keep investors updated about its outsized Series E deal.
Also, while the company doesn’t have the bearish attention that earlier Reddit stocks “enjoyed,” its still on some short traders’ radar. At present, CNK stock has a short percent of float of 30.2%, though its short ratio is somewhat modest at 6.6. Also, Corsair seems like such an obvious idea for high-potential (albeit incredibly risky) Reddit stocks that it’s akin to picking low-hanging fruit. A gaming hardware and peripherals specialist, CRSR stock experienced a massive bump higher in the early months following its debut on the Nasdaq in September 2020.
But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop. With fewer people out shopping due to the pandemic and most games being sold online, things weren’t looking great for the company. Last month, a Deutsche Bank survey of 430 retail investors found they planned to put 37%, on average, of any stimulus cheques directly into equities. Earlier that day the share price had soared to nearly $350 (£250) times more than this time last year. As a comparison Zoom’s market cap to revenue ratio on its 2022 revenue is 21x.
Starting in mid-December 2020 the share price moved above $3 and rose to $5.38 at the end of the year. It crept up during January to $7.11 and made an elevator move to $23.72 on February 16. While it gave up more than half to close at $11.77 on March 8, it was essentially range bound between $11 and $18 until the last three days. A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.