By To answer the question of whether $GME and $AME good stocks to invest in we will analyse both stocks in this TabStocks article.
Our article will cover –
- ANALYSIS OF THE GREAT SHORT SQUEEZE
- TRAJECTORY AND PROJECTION OF THE STOCKS IN THE EQUITIES MARKET.
BACKGROUND –
GameStop Corp ($GME) and the American Multi-cinema holdings, Inc ($AMC) are both publicly traded companies in the NYSE with the former in Retail and the latter in the Entertainment industry.
They both were formed in the 20th century and have recently been a hot topic of conversation in the financial markets. The two share a lot in common more than the downturn spiral witnessed in the markets.
In the past two years, they have seen great shorting of their stock with GameStop sellers leading the move in 2020 and $AMC has short-sellers following in 2022. The mania witnessed in the market led to a massive number of short-sellers resulting in a short squeeze termed “The Great short”.
To understand the staggering plummeting of the stocks that caught the attention of the sellers, we must review the operating fundamentals of the two companies once considered market giants.
The two corporations dominate in their industries and are held by mega institutional investors. They are both considered meme stocks as popularized by social media (Reddit).
GME is a video game and consumer electronics retailer based in Grapevine, Texas. It is considered the largest video game retailer in the world. The company runs over 4800 stores worldwide.
From its inception in the 80s, it saw rapid profitably until it peaks in the 2010s. $GME is a conventional video game industry with physical locations. This advantage quickly was turned against them with the online world of gaming.
The disruption by online gaming had a profound effect on $GME and threatened its very existence. This dire situation was made worse by the Corona Pandemic that halted movement thus all its stores had to shut down.
This impacted their stock negatively and a series of downward movements followed. This chance was pounced upon by short sellers to make enormous gains. Hedge funds especially capitalized on the plummeting stock (predatory trading) as they led the move thus swaying the market in their direction.
$GME is still undetermined as far as predictions go. On one hand, it seems to have a chance to rebound after the pandemic as masses flock back to the stores.
On the other hand, the cost of running physical stores and competing against cost-effective online companies which are not constrained by locations; could pose a serious threat to the future of $GME.
Currently, it is ranked 526th on the fortune 500 lists. Their financial standing of hard assets could prove to be vital in an uncertain future and it explains why Institutional Investors are holding on to $GME.
AMC is an entertainment franchise and the largest movie theater chain in the world, Headquartered in Leawood, Kansas. Just like $GME, it has thousands of stores where it controls its screens and is massively invested in the conventional commercial space.
The latter century saw robust growth for $AMC as the film industry boomed. The online revolution has also had its toll on the growth of $AMC as the online movie streaming services quickly outpace traditional theaters.
The novelty of physical theaters took a further blow with the pandemic as people were forced to stay indoors. Consequently, $AMC faces a danger of extinction and seems likely to be replaced by streaming services.
$AMC seeks to take contingency measures to ensure its survival. It has recently diluted its shares and made strategic partnerships to remain afloat. They hoped to ‘build back better after the pandemic as they expect a surge in theater booking in a post-covid world.
Institutional investors hold roughly 37% of the stock while the rest is held by the public. $AMC currently falls below its targets and has over 6 billion in debt. They hope to leverage the situation in their favor and thrive in years to come.
CURRENT SITUATION –
The chart above shows the trading graphs of $NOKIA, $AMC, and $GMC. The above stocks are in the same financial position. They are former market giants that have been fundamentally disrupted by new players in the market and thus have seen a decline in their trading prices.
This has initiated their stocks to be shorted by traders believing that they will plummet and eventually go out of business. It is important to understand two important terms in the financial markets to understand this phenomenon.
Short selling is where traders borrow shares of falling stocks and sell them, the difference in the current high prices and the low prices in the future at which the stock is bought back by the trader, makes up the profit.
The short seller gains in this scenario and an investor who held the stock with the hopes of higher prices will lose.
A short squeeze occurs when a stock/security is heavily shorted by traders believing the price will fall, the price instead rises triggering the masses of short sellers to immediately buy back to hedge against potential losses. The risk/reward of these market positions is mutually infinite.
The figure above shows the $AMC trading chart.
WALLSTREET vs REDDIT –
A spark has emerged between the traditional Wallstreet titans and the rising amateur investors of the Reddit online social platform. The latter believe that the system is rigged and Wallstreet, Particularly hedge funds have historically taken advantage of the market.
$AMC stock was shorted 21% as of 2021. The situation has rolled over to 2022 and analysts now believe it to be a short squeeze.
One of the biggest short-sellers is the giant multinational Hedge fund Citadel LLC. CEO Kenneth Griffin is among many who believe that $AMC is fundamentally overvalued. They still maintain short positions on the stock and they could stand to lose a lot of capital with a short squeeze.
Citadel is among many hedge funds that are believed to be overexposed and retailers are looking to jack up the stock by buying it up hence artificially propping up the prices. Extreme volatility has been witnessed in the $AMC stock, recording a 52-weeks high of 72 dollars per share and a 52-weeks low of 5 dollars per share. It has currently closed at $17 and has averaged trade at a day range of $16 to 18 dollars.
$GME gained traction in mainstream media as one of the centers of the massive short squeeze. Such was the impact of the short squeeze that it almost caused the collapse of Melvin capital, a mega hedge fund that shorted GameStop.
These dire short positions saw Melvin capital lose 30% of its value and it took a $2.8 billion bailout by fellow hedge fund players.
17.8% of GameStop is held by insiders while the rest is held by institutions and the general public. $GME has seen shares of about $27. 13 million shorted in the past years with $8.61 million worth of shares shorted on 15th December 2021 alone.
$GME has a float of about 62.49 million shares. Their stock has tumbled severely in recent years and it has been on the brink of bankruptcy. It is argued that an influx of capital in the stock is what sustains its survival.
SOVEREIGN FACTORS –
To understand the future of $AMC and $GME we must consider the fundamental factors driving the craze. Key of which include the following strategic action:
- The acquisition of $GME and $AMC stock by CALPERS
The largest US pension fund bought a significant percentage of shares from $GME, $AMC, and Berkshire Hathaway. This move is critical and indicates a sound decision to acquire solid equities.
Berkshire is known for its fundamentals and the buying of the two stocks alongside it shows that CALPERS, a mega pension fund that will at cost try to mitigate and spread risk, believes in the rise of the two companies.
- Large ownership by Institution investors
The action by institutions to acquire $GME and $AMC goes on to show the faith of institutions in their future performance.
- Market inflation and policy by the central bankers
The recently plummeting stock market could be due to an attempt by the Federal reserve bank to raise interest rates thus tapering inflation. Inflation has been at historic highs of late and steps to curb inflation could lead to a market correction.
Tight fiscal and monetary policies will force the overpriced asset bubble to collapse. Both companies will be equally impacted by this as the rest of the equities markets.
- Strategic policies by $AMC and $GME
Considering that the odds have not been in their favor due to virtual/online seismic shift and the pandemic, the two organizations will be looking to reinforce their arsenals. The primary advantage they have is the physical experience they both offer.
$AMC has acquired more theaters and used popular celebrities to boost its brand. GameStop will be looking to attract the masses to video games with strong marketing and hope to revive the industry.
It is generally agreed that only the fundamental enterprises with strong balance sheets and potential will survive in the coming years. A lot of volatility will likely continue but they can improve and thrive in a sound market if they enact better strategies to capitalize on the markets.
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