So-called meme stocks are having a moment again. What do Reddit, Trump Media & Technology Group and GameStop have in common? All of them are actively involved in retail trade. Trump Media made its public debut on Tuesday under the ticker symbol DJT after merging with shell company Digital World Acquisition Corp. The current market capitalization of the new business is approximately $9 billion. A market capitalization of approximately $9 billion would put Trump Media on par with companies at the bottom of the S&P 500 index, making it comparable to Caesars Entertainment, American Airlines and Mosaic. Reddit, which is not in the S&P 500, also has a market capitalization of about $9 billion. Trump Media & Technology market capitalization is $9.4 billion. Reddit is $9.2 bp. Caesars Entertainment $9.4 billion American Airlines $10 b. Mosaic $10.3 billion This is quite remarkable considering Trump Media’s revenue was approximately $3.3 million. The company lost $49 million in the first nine months of last year, according to The New York Times. GameStop, by comparison, made a small profit in its fiscal year, with revenue of $5.2 billion. The market cap is about $4 billion. Even if you think of it as a meme stock, that’s a big difference. GameStop has a small profit, with revenue of $5.2 billion and a market capitalization of $4 billion. DJT has $3 million in revenue, is losing money, and has a market cap of $9.4 billion. GameStop makes Trump Media & Technology look like JPMorgan. Another stock that has done well is Reddit, which surprised everyone by nearly doubling its initial public offering price of $34 within days of its debut, which is the opposite of the usual pattern of high-interest IPOs declining after their first trading session. Reddit has given an unspecified amount of shares to its site’s moderators, who are part of its loyal user base. What do meme stocks have in common? What Trump Media, GameStop and Reddit have in common is a strong retail base. This means that there is a large base of individual investors rather than institutional ones. Retail investors tend to be more driven by emotion and less concerned with old-school metrics such as fundamental analysis, which attempts to determine the right price for a stock based on estimates of future profitability and dividends. Each of these three stocks has a user base with a strong attachment to the product or founder. This does not mean that the laws of investing have been abolished. Fundamentals matter. When GameStop first began to explode in early 2021, many retail traders told me it proved that a dedicated, organized group could move shares and fundamentals didn’t matter. This, of course, is nonsense. A share is an ownership interest in a company, giving the shareholder the right to claim the company’s earnings and assets. This is literally the definition of a stock. Fundamental analysis was developed as a way to guess what future earnings flow, including dividends, will look like. This can be seen in the charter of the very first modern joint stock company, the Dutch East India Company, which began operations in 1602. The company was created to import spices from the Moluccas Islands in eastern Indonesia, but quickly expanded. In its charter, the Dutch East India Company stated that ownership gave shareholders the right to profit from the sale of spices. According to this document, whenever cargo arrived at the port, the company was required to provide “a certificate indicating the goods received and the condition of the cargo. It is also necessary to indicate what the revenue received from the sale of the product is.” to the province or city when they request it… Once the 5% of the return cargo has been cashed, it must be distributed to the participants.” Here, in the very first modern joint stock company, the owners tell you: You are buying our shares to share in the profits of the spice trade. Since then, every company has made essentially the same promise: You buy our shares so you can profit from the business we do. Have investment laws been repealed? As for GameStop, it’s been on a long, slow decline since mid-2021, rising from around $75 (based on the July 2022 differential) to around $13 after the company reported disappointing sales this week. Almost every person who bought GameStop in the last three years is in the red. Looking ahead to the gaming retailer’s future, Wedbush’s Michael Pachter, one of two analysts covering GameStop, noted that the company continues to see sales decline due to falling hardware sales, fewer major console releases and the rise of video games. subscription services. The retailer is not in imminent danger of going under, but Pachter noted: “If we’re right, GameStop will likely have a life of no more than five years. target, but we expect the company to decline at some point later this decade.” What does all of this mean? Back in the 1990s, a man named Arch Crawford often appeared on our airwaves. He gave investing tips based on astrology – I’m not kidding. If the stars and planets were aligned correctly, now might be the time to buy Microsoft. You might be surprised to know that he had a following. If enough people decide they want to invest in astrology, sunspots, or the personality of a single person – or they just want to HODL and believe the stock will do well – it might be possible to move the stock and leave everyone scratching their heads. . But in the end the story collapses. The basics matter. You may not believe in gravity, but gravity believes in you.
