By
Chimamanda U. Martha
January 18th, 2024
Meme stocks GameStop and AMC closed higher on Thursday after initially spiking higher during the intraday trading session.
Shares of video game-merchandising giant GameStop (NYSE: GME) and movie theater chain AMC (NYSE: AMC) both climbed considerably on Thursday. GameStop jumped more than 30% at one point, after it halted for volatility on several occasions, before ending the session with a 10% gain. Meanwhile, AMC (originally American Multi-Cinema) initially surged more than 20% before finishing with a comparatively modest 8% gain.
GME is currently at $89.57 per share, while AMC Entertainment last closed at $11.20 per share.
GameStop & AMC Ruled the Roost in 2021
The recent price surge of GameStop and AMC, both meme stocks last year, comes amid a steadily declining market. As a result, despite Thursday’s gains, the duo is some way off the heights they attained in the first half of 2021. Back in January last year, GameStop rose as high as $483 per share on an intraday basis, while AMC attained an intraday high of $72.62 last June.
The reason for last year’s spike of the NYSE-listed meme stocks was deliberate and coordinated retail investor activity. Occurring in online chatrooms, these investor activities synced up to create substantial short squeezes that sent both stocks skyrocketing. GameStop and AMC leveraged their temporarily high stock prices throughout the rally period and even after that. Both companies were able to sell additional stock and subsequently raise capital, with AMC buying up other theaters with part of its proceeds. Furthermore, earlier this year, the world’s largest movie theater chain bought into a small gold mining firm called Hycroft Mining.
At the time, the rallies from the GameStop and AMC stocks also hurt the interests of several hedge funds and other short sellers involved. This is because these classes of investors traditionally oppose what they consider to be purely speculative stocks.
AMC CEO Adam Aron has been gracious to the retail investors who participated in the rally. The movie theater chain executive demonstrated this by fielding questions from retail traders on earnings calls. In addition, Aron also introduced shareholder perks at AMC’s physical movie theaters.
Short Interests & Short Squeeze
However, since that period last year, stocks have retreated from their sky-high prices and short-sellers are staking claims again. Short interest refers to the measure of the availability of a company’s shares, or float, sold short. According to FactSet, GameStop has a short interest of 21.4%, with AMC having 19.5%.
Owing to the substantial drop in market cap by both GameStop and AMC, a large fund is capable of forcing a new short squeeze. Ihor Dusaniwsky of financial analytics firm S3 Partners seems to agree with this, citing short positions health.
“A wild ride for these stocks, but although there might be some short-sellers getting squeezed out of their positions in order to realize recent mark-to-market profits, today’s losses on the short side are a drop in the bucket relative to the profits they’ve made in these names over the last week and month,” Dusaniwsky said.
