Meme Stocks Mania: Clover Health Gains Big After GME, SNDL, AMC and BlackBerry
June 14 2021 - 5:29AM
Finscreener.org
Since the start of 2021, a group of retail
traders on social media platform Redditt have initiated multiple
short squeezes in “meme” stocks. These stocks are fundamentally
weak and have a high short-interest ratio.
A short squeeze takes place when a stock
experiences a significant uptick in its price. This in turn forces
short-sellers to buy the stock and cover their losses. For example,
if you are a trader who is bearish on a particular stock that is
currently trading at $50 per share and is convinced that prices
will move lower in the upcoming sessions, you will “short-sell” the
stock.
It means you borrow the particular stock and
sell it for $50. If the stock drops to $40, you can buy it back and
pocket a profit of $10/share. However, in case the stock rises to
$60, you may have to repurchase the stock at a higher
price.
Now, in the past few months, short-sellers
were targeted by a group of traders who could drive share prices
significantly higher, leaving the former with no option but to book
a loss and cover their position. This is called a short-squeeze.
Here, we take a look at some of the stocks that have been part of
the short squeeze mania.
GameStop
Shares of the video-game retailer were
trading at $4.96 per share in June 2020. It then touched a record
high of $483 in January 2021 before falling to less than $40 in the
next month, Currently, GME stock is trading at $310.4 and has more
than doubled in the last month.
GameStop (NYSE:
GME) has been severely impacted by the shift towards digital
gaming. Players now can download games from gaming consoles making
GME irrelevant in the supply chain. While GME is looking to pivot
towards an e-commerce model, it remains a stock that is
fundamentally weak and one that’s grappling with multiple
issues.
AMC Entertainment
Shares of theater chain AMC Entertainment
(NYSE:
AMC) were trading at $6 in June 2020. AMC stock then rose to
$20 in January this year and touched an all-time high of $72.62 in
intra-day trading this month. AMC stock is currently trading at 49
per share and is up a whopping 417% in the last month.
However, long-term investors should note that
AMC remains a high-risk bet given that OTT and streaming platforms
have gained massive traction amid the ongoing pandemic.
BlackBerry
Shares of BlackBerry (NYSE: BB)
were trading at $7.52 in June 2020 and touched a multi-year high of
$36 in January 2021. It’s currently trading at $19.3 and is up 88%
in the last month. BlackBerry lost massive ground in the smartphone
segment and pivoted towards enterprise security. However, here too,
the company has disappointed investors as sales were down over 30%
in the last reported quarter.
Sundial Growers
A Canada-based cannabis producer- Sundial
Growers (NYSE: SNDL)
shares were trading at $0.2 in October 2020 and rose to $3 in
February 2021. Its currently priced at $1.18 and is up 54% in the
last month. SNDL stock has
grossly underperformed the broader markets and is still down
90% from all-time highs.
In the first quarter of 2021, it reported a
negative gross margin while its sales were down 37% year over year.
Sundial is now looking to drastically reduce its product portfolio
and focus on high-margin items while financing other cannabis
companies and diversifying its revenue base.
Clover Health
Clover Health Investments (NASDAQ:
CLOV) which is a Medicare Advantage insurer in the U.S. has
seen its stock price rise from $7 in May 2021 to $22.15 on June 8
when it gained 85% in market value. It touched a record high of
$22.15 in intra-day trading and is since down 40% at $18.73 per
share. Investors are worried about the stockU+02019s high valuation
metrics and its ability to compete with legacy players that are
market leaders in the insurance space.
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