Meme stocks are back. Are the companies they highlight actually benefitting?
Meme stocks are back. Are the companies they highlight actually benefitting?
Meme stocks are back.
Remember a year and a half ago, when the retail gaming company GameStop’s stock went from less than $20 to about $500? And theater chain AMC’s went way up too? Despite the fact that neither company was on the best financial footing?
The sudden interest in these companies was fueled by the whims of a bunch of amateur investors on Reddit.
And now it’s happening again, this time with Bed Bath & Beyond. The company’s stock took a bit of a nosedive Thursday morning after a billionaire investor filed to sell his entire stake — BB&B stock is down 6% in early trading — but it’s still higher than it’s been in months.
This raises the question on whether companies can actually benefit from this.
A company can capitalize on becoming a meme stock if its stock price stays up for long enough — mainly by issuing new stock, said Chester Spatt at Carnegie Mellon University.
“Basically, if you can sell stock into the market at valuations that are artificially high … that’s an opportunity to help improve your business situation,” he said.
By raising money, “the high stock price also allows companies to build confidence with banks,” said Andy Wu at Harvard Business School. When companies are able to raise additional capital, “it allows them to invest in growth opportunities. So for example, repositioning a company from brick and mortar into an e-commerce business, as we’ve seen with GameStop.”
GameStop and AMC’s stocks have both dropped again, though they’re still higher than they were in early 2021.
“It’s not clear to me they’ve justified their stock price,” Wu said, adding that both companies are more financially stable, at least for now.
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