Amidst the turbulent times of the meme stock frenzy in 2021, the stock market resembled the lawless days of the Wild West, with GameStop (GME) emerging as the unrivaled frontrunner, unleashing a seismic short squeeze rarely witnessed.
While not alone in the chaos, other meme stocks like AMC Entertainment (AMC) inflicted considerable pain on short-sellers, triggering tumultuous price fluctuations.
And now, the fever has returned. Let’s delve into this renewed mania.
The Resurgence of Roaring Kitty
The infamous Roaring Kitty, also known as Keith Gill, played a pivotal role in igniting the meme stock frenzy of 2021 by drawing attention to short sellers. The frenzy resulted in a monumental short squeeze in GameStop shares, with other heavily shorted stocks like AMC Entertainment adding to the woes of short sellers.
Following a period of dormancy, Roaring Kitty resurfaced on social media recently, breaking his silence with a post that reignited the meme-stock traders’ fervor, leading to extreme volatility in GME shares.
The Current State of GameStop
GameStop disclosed its quarterly results today, revealing a substantial decline in sales compared to the same period last year. The stock faced downward pressure post-announcement, with GME also announcing a $75 million at-the-market offering.
Image Source: Zacks Investment Research
The company’s prospects have taken a hit, with the stock currently sporting a Zacks Rank #5 (Strong Sell). The recent price action driven by a short squeeze is far removed from the company’s actual earnings outlook.
Closing Remarks
When heavily shorted stocks start to climb, it sets off a brutal cycle for short sellers who are compelled to cover their positions by repurchasing borrowed shares. This results in substantial losses for shorts who fail to close their positions, while traders revel in the market rollercoaster.
This exact scenario unfolded in 2021 with meme stocks like GameStop (GME) and AMC Entertainment (AMC).