So-called meme stocks are having a moment again. What do Reddit, Trump Media & Technology Group, and GameStop have in common? All have strong retail involvement. Trump Media made its market debut on Tuesday under the symbol DJT, following its merger with shell company Digital World Acquisition Corp. The new company's current market cap is about $9 billion, and a market capitalization of roughly $9 billion would put Trump Media on par with names at the lower end of the S&P 500, making it comparable to Caesars Entertainment, American Airlines, and Mosaic. Reddit, which is not in the S&P 500, also has a market cap of about $9 billion, and Trump Media & Technology has a market cap of $9.4 billion. Reddit $9.2 billion Caesars Entertainment $9.4 billion. American Airlines $10 billion. Mosaic: $10.3 billion. That's pretty remarkable, considering Trump Media's revenue is about $3.3 million. The company lost $49 million in the first nine months of last year, according to the New York Times. In contrast, GameStop made a small profit in its fiscal year, with revenue of $5.2 billion. The market value is about $4 billion. Even if you think of these stocks as meme stocks, that's a big difference. GameStop has a small profit, revenue of $5.2 billion, and a market cap of $4 billion. DJT has revenue of $3 million, loses money and has a market cap of $9.4 billion. GameStop makes Trump Media & Technology look like JPMorgan. Another big hit was Reddit, which surprised everyone by nearly doubling its IPO price of $34 within days of its debut, the opposite of the usual pattern in which high-interest IPOs decline after the first trading session. Reddit has granted an unspecified number of posts to its site moderators, who are part of its loyal user base. What Meme Stocks Have in Common What Trump Media, GameStop, and Reddit have in common is a high retail base. This means that there is a large base of individual investors rather than institutions. Retail investors tend to move more based on emotion and are less interested in old-school metrics like fundamental analysis, which attempts to determine the correct price for a stock based on an estimate of future profitability and earnings. Each of these three stocks has a user base with a strong connection to the product or founder. This does not mean that investment laws have been abolished. Fundamentals Matter When GameStop first exploded in early 2021, a lot of retail traders messaged me telling me that this proves that a dedicated, organized group can move the stock and that fundamentals don't matter. This, of course, is nonsense. A stock is an ownership interest in a company, giving the stockholder the right to claim the company's profits and assets. This is literally the definition of a stock. Fundamental analysis was developed as a means of guessing what this future stream of earnings, including dividends, will look like. You can see this in the charter of the 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 in eastern Indonesia, but it expanded rapidly. The Dutch East India Company said in its charter that ownership would give shareholders the right to receive profits from the sale of spices. According to this document, whenever a shipment arrived at the port, the company was required to file “a statement listing the goods received, and the condition the shipment is in. The proceeds received from the sale of the goods must also be filed.” “To the provinces or cities, when they request it. … Once 5% of the returned merchandise has been disbursed, it will be distributed to the participants.” Here, in the first modern stock company, the owners tell you: ÂYou are buying our stock to share in the profits of the spice trade. Every company since has made essentially the same promise: You buy our stock to share in the profits of the business we operate. Have investment laws been abolished? As for GameStop, it has been on a long, slow decline since mid-2021, going from around $75 (the split was revised in July 2022) to around $13 after the company reported disappointing sales this week. Almost everyone who bought GameStop in the past three years is in the red. Looking to the gaming retailer's future, Wedbush's Michael Pachter, one of only two analysts covering GameStop, noted that the company was continuing to see declining sales due to declining hardware sales, a lack of big console releases and video game growth. Subscription services. The retailer does not face an imminent risk of collapse, but Butcher noted that “if we are right, GameStop likely has a runway of no more than five years. GameStop's demise is outside the 12-month window that we use for our price target, but we do expect a demise.” company sometime later this decade.” What does all this mean? In the 1990s, we often had a guy named Arch Crawford on the air. He was giving investment advice based on astrology – I'm not kidding. If the stars and planets align correctly, this could be a good time to buy Microsoft. You may be surprised to hear that he has a following. If enough people decide they want to invest in astrology or sunspots or one man's personality — or they just want to hold the stock and think the stock will do well — it may be possible to move the stock and leave everyone behind. Scratching their heads. But eventually, the story falls apart. Basics are important. You may not believe in gravity, but gravity strongly believes in you.
