Earnings season is wrapping up, but not before the two meme stocks that started the Reddit Revolution took centerstage: GameStop Corp. (GME) and AMC Entertainment Holdings Inc (AMC).
You may recall that back in 2021 a group of Reddit users joined forces during the last trading week of January 2021 to put the screws to a bunch of big hedge funds that were shorting stocks like GameStop and AMC Entertainment. Their efforts ultimately created dramatic short-covering rallies in both GameStop and AMC Entertainment, as well as several other companies with short interests.
Both GME and AMC surged in 2021, but the rallies came to a crashing halt this year as people rotated out of meme stocks and back into fundamentally superior stocks.
The reality is stocks like GME and AMC sorely lack exactly what a stock needs to succeed: strong fundamentals.
And we need look no further than the companies’ latest earnings results for proof.
On Thursday, March 17, GME released its earnings for its fourth quarter. The company reported an earnings loss of $1.86 per share. Analysts were expecting earnings of $0.84 per share, so GME missed earnings estimates by a whopping 321.4%. Revenue rose 6.21% year-over-year to $2.25 billion, beating analysts’ estimates by 4%.
GameStop Chief Executive Matt Furlong cited supply chain issues and the Omicron variant as obstacles to the company’s holiday season.
GME has been shifting towards a tech focus as of late. Last month, the company announced its partnership with blockchain Immutable X to try to break into the non-fungible token (NFT) scene. It aims to launch its NFT marketplace by the end of the second quarter.
The company also revamped its app and added more fulfillment centers to ensure faster delivery on online orders. “We needed to lay a lasting foundation rather than taking shortcuts,” Furlong said in a statement.
The stock fell nearly 10% at the open on Friday. The reality is investors were expecting a strong holiday season, which should have turned a profit for the videogame retailer.
Fellow meme stock AMC’s earnings didn’t fare much better in early March…
For the fourth quarter, AMC reported an earnings loss of $0.11 per share, a 42% earnings surprise on estimates for an earnings loss of $0.19 per share. Revenue surged 600% year-over-year to $1.17 billion. Net losses improved to $134 million.
Chairman and CEO of AMC Entertainment Adam Aron said, “AMC’s fourth quarter 2021 results represent our strongest quarter in two full years…Our record year-end liquidity positions AMC well for continued recovery from the impact of COVID and provides AMC with the financial flexibility to opportunistically grow and innovate as we seek to transform our business.”
Earlier this week, the company announced it would buy 22% of Hycroft Mining Holding Corporation. Aron noted the strength that Spider-Man: No Way Home and The Batman brought to theaters and cited these films as players in AMC’s path to revitalization.
The investment “is the result of having identified a company in an unrelated industry that appears to be just like AMC of a year ago. It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue…We are confident that our involvement can greatly help to surmount its challenges—to its benefit and to ours,” Aron said of the investment.
While GME and AMC surged more than 670% and 1,000%, respectively, in 2021, you can see the stocks have begun to drop dramatically again this year.
Now, let me show you how the Wall Street responded to a few of my Accelerated Profits stocks that reported better-than-expected results recently.
First up, One Group Hospitality Inc. (STKS).
The company operates high-energy, upscale dining locations in the U.S. and worldwide, as well as provides food and beverage services for other hospitality venues like hotels and casinos. The company posted fourth-quarter and full-year results before the stock market opened on Monday.
For the fourth quarter, STKS reported earnings of $5.8 million, or $0.17 per share and revenue of $84.1 million, which compared to an earnings loss of $4.5 million, or a $0.15 per share loss, and revenue of $45 million in the same quarter a year ago. Adjusted earnings per share were $0.24, topping estimates for $0.21 per share.
For its fiscal year 2021, STKS achieved earnings of $31.3 million, or $0.93 per share, on $277.2 million in revenue. That’s up from an earnings loss of $12.8 million, or a $0.44 per share loss, and revenue of $141.9 million in 2020. Adjusted earnings per share were $0.59, which also beat forecasts for $0.56 per share. The company noted that it opened seven new locations in 2021, and it plans to open at least nine new locations this year.
Looking forward to the first quarter in fiscal year 2022, STKS expects total revenue between $69 million and $70.2 million. That’s up from revenue of $47.28 million in the first quarter of 2021, and it’s also nicely higher than current estimates for $68.77 million.
The stock rallied more than 9% in the wake of its strong earnings results.
Costamare Inc (CMRE), one of the world’s leading owners and operators of containerships, jumped 6% following its earnings announcement on Wednesday, March 9. On the same day, ZIM Integrated Shipping Services Ltd (ZIM), another containership operator, surged to a record high after a stunning quarterly report.
So, it’s really no surprise that these stocks are significantly outperforming AMC, GME and the S&P 500.
The bottom line: The meme stocks are falling out of favor as investors become more fundamentally focused.
Looking forward, I expect investors to continue to flock to stocks with superior fundamentals. In this inflationary environment, the stock market remains the best game in town. Investors have no choice but to invest in companies that are profiting from inflation and, in turn, are posting record sales and earnings. And my Accelerated Profits stocks are in prime position to benefit as they are characterized by 32% forecasted sales growth and 83.7% forecasted earnings growth.
While I know the broader market volatility has made it more difficult for some to pinpoint good investments, it’s important to know that there are plenty of opportunities still out there – it’s just a matter of knowing where to look. If you’re not sure where to start, I’d recommend the stocks in my Accelerated Profits service. I just recommended three new buys on Tuesday that are well-positioned to benefit from the recent surge in oil and natural gas prices, as well as one that should benefit from the turnaround in the fertilizer market.
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