Why GameStop and AMC Entertainment Shares Soared Today

What happened

Actions of GameStop (NYSE: GME) Y AMC entertainment (NYSE: AMC) they rose 52% and 21%, respectively, on Thursday, helping them recoup a significant portion of their recent losses.

And that

GameStop shares lost a third of their value on Wednesday after the video game retailer’s fourth-quarter revenue and operating profit fell short of Wall Street expectations. Analysts were also upset that GameStop was unable to offer much insight into its digital transformation plan and declined to answer questions during its earnings call.

AMC Entertainment also dropped dramatically earlier this week, following news that Walt disney would make two of its upcoming movies available on its popular Disney + streaming service on the same day they begin showing in theaters.

Operators piled up again at GameStop and AMC Entertainment on Thursday. Image source: Getty Images.

Some investors apparently felt the sell off was overdone. The bulls were undoubtedly encouraged by the massive increase in Jefferies Financial Group’s price target for GameStop shares. Analyst Stephanie Wissink boosted her stock price forecast more than tenfold $ 15 to $ 175. Wissink posited that GameStop would successfully transition its business from its brick-and-mortar stores to a primarily e-commerce model, while taking advantage of opportunities in e-sports and collectibles.

However, it should be noted that GameStop hired Jefferies to help it with a possible stock offering. Jefferies also owns a significant portion of GameStop shares. Still, investors bid on GameStop shares at $ 183.75, or within about 5% of Jefferies’ new price target.

Watching the GameStop rally likely also helped boost sentiment for AMC among merchants on Reddit and other social media sites. Many individual investors have tried to coordinate their stock purchases on these sites in recent months, which has helped drive violent price swings at GameStop, AMC, and other so-called meme stocks, companies that have promoted their stocks on the internet – both alike. up and down.

Now what

By bidding so heavily on their shares, investors are betting that GameStop and AMC will not only survive, but thrive in a post-pandemic world. However, GameStop stores still face an existential threat from video game downloads, while fast-growing streaming services like Disney + threaten the long-term survival of AMC theaters. So despite today’s rally, both GameStop and AMC remain high-risk investments.

This article represents the opinion of the author, who may disagree with the “official” recommendation position for a premium Motley Fool consulting service. We are variegated! Questioning an investment thesis, even one of our own, helps all of us think critically about investing and make decisions that help us be smarter, happier, and wealthier.

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