If you blinked you may have missed this, but the stock of Beyond Meat, the purveyor of meatless burger patties, had a spectacular run a few days ago.
The stock had surged by more than 1,400% in the four days through Oct. 22, when shares hit an intraday peak of $7.69, up from a low of 50 cents on Oct. 16.
Given that this El Segundo-based company has never had a profitable year since its 2019 initial public stock offering, the run-up was apparently triggered by the online touting of the stock by a trader named Demitri Semenikhin, and the shares have since settled back to $1.65 (in intraday trading Thursday), the action has market observers asking if “meme stocks” are back.
The answer is no — because they’ve never gone away.
The appetite of small retail investors for what beckon as big scores in unloved stocks has remained strong since the meme stock trade attracted attention during the pandemic year 2021.
The “meme” sobriquet points to the most notable factor driving the swift run-up and rapid downfall of these stocks: They feed on momentum generated by internet touts, not sober assessments of business prospects and financial results. Indeed, the quintessential meme stock has little in the way of profits to catch the eye of serious investors.
Beyond Meat is just the latest company to enjoy sudden meme-dom, followed by an equally sudden dose of reality. In Beyond’s case, the surge came in the wake of its Oct. 13 announcement of the results of a debt swap deal that will massively dilute the stake of shareholders. Short sellers piled into the stock, setting up the momentary rebound typical of meme stocks.
Over the last few months, meme stock traders have piled into, and then out of, shares in Krispy Kreme, GoPro, Kohl’s and other companies that are disdained as underperformers by the Wall Street establishment, only to be taken up by an internet-fueled army of small investors. But those investors seldom have the resources to survive the almost inevitable snapback.
For those who may not recall the meme stock frenzy of 2020-21, here’s a trip down memory lane.
The emblematic meme stock of 2021 was GameStop, a spavined mall-based video game retailer that was struggling through the transformation of its franchise from brick-and-mortar stores to online commerce. The company had lost a combined $1.36 billion from 2018 through 2020, and its future looked bleak.
Then, as if out of nowhere, the stock got noticed by online investment promoters, who urged followers to buy GameStop shares to hurt Wall Street short sellers, who were betting that the stock would keep falling.
The shares climbed relentlessly through January 2021, soaring from a low of $12.16 in mid-December to an intraday high of about $483 on Jan. 28. It closed that day at $193.60, delivering a prompt lesson that investing in stocks based on claims touted online is a mug’s game.
All this action was the product of several confluent factors. One was the pandemic and its attendant lockdowns, which prompted people deprived of social contacts and customary entertainment pursuits to fill their empty hours day-trading stocks. Internet influencers goaded their followers into trading in concert with the goal of putting it to the Man — i.e., rich Wall Street hedge fund managers who were shorting unloved stocks and deserved to be taken down a peg.
GameStop stock wasn’t the first issue to get memed. In 2020, investors piled into Hertz, even though it had been forced to seek bankruptcy protection after the COVID-19 outbreak cratered the rental car market,. Bloomberg even declared 2020 “the year of the meme stock.” (Hertz abandoned a plan to sell new shares into the frenzy after regulators raised questions about it.)
But it was GameStop that made meme stock trading into, well, a meme. GameStop displayed all the elements that drove the meme frenzy, the Securities and Exchange Commission ultimately reported: “(1) large price moves, (2) large volume changes, (3) large short interest, (4) frequent Reddit mentions, and (4) significant coverage in the mainstream media.”
A key element of the meme market was an influx of young individual investors enthralled by get-rich-quick trading come-ons. Robinhood, an online brokerage that cut commissions to zero and enticed new customers with an app that made stock trading resemble playing a video game, disclosed that “its average customer is 31 years old and has a median account balance of $240,” the SEC reported.
One might have expected that as these factors ebbed, the meme stock frenzy would evaporate. It did, somewhat, but not nearly as much as Wall Street pros expected. Indeed, as GameStop rose, the buyers gleefully declared victory over the shorts, fueling the search for more meme-able stocks. Some investors made the theater operator AMC Entertainment a meme stock. Some joined new crazes, such as cryptocurrencies, nonfungible tokens and other assets more or less immune from the traditional investment fundamentals such as revenues and profits and business plans.
Nothing was especially new about individual stocks having a moment in the sun before falling back into obscurity, but the frenzy of early 2021 turned meme stocks into an assiduously followed investment category all its own. Financial pages and tout sheets ran wrap-ups of meme action every year. GameStop and AMC were perennial members of this club, supplemented by newcomers.
In 2022, the star was the bankruptcy-bound retailer Bed Bath & Beyond, which staged a nine-day rally that summer culminated in a one-day 40% surge Aug. 8 on extraordinary volume of 120.5 million shares. (Its Chapter 11 bankruptcy filing finally arrived in April 2023.)
To define the category, market analysts generally rely on the factors mentioned by the SEC in its reference to GameStop. But not all meme stocks were similarly obscure before having their day. One that has recently landed on meme stock rosters is Tesla: “Wildly overvalued compared to rival automakers, its shareholders are betting that they can sell their holdings to a greater fool in the near future,” economist J. Bradford Delong of UC Berkeley wrote in May 2024.
Earlier this year, Yale professor Jeff Sonnenfeld polled the attendees of his most recent CEO conference on the question: “Compared to NVIDIA’s 40x P/E forward multiple and Apple’s 30x multiple, has Tesla at 160x become the biggest meme stock in modern financial market history?”
Of the 100 participants, 83 voted “yes.”
Meme investors have acquired new tools to follow and invest in meme targets. Bloomberg and UBS have developed meme stock indexes, and in October a meme stock exchange-traded fund — a mutual fund that trades like a stock — was launched by the investment house Roundhill.
One can hardly fault Roundhill’s warning of the risks of meme investing: “Meme Stocks are characterized by high trading volumes and significant price volatility, often driven by social media trends and investor interest,” it advises potential investors. “Meme Stocks often trade untethered from … fundamentals, driven instead by speculative fervor and viral momentum.”
“Volatility” is the mot juste for this ETF: Despite notching a 17% gain over four days shortly after its introduction, MEME is currently down more than 23% from its Oct. 14 peak.
Meme-stock buying is often triggered or sustained by a nugget of bull-market sentiment. The Beyond Meat narrative included its Oct. 21 announcement of a deal with Walmart that will place its products in more than 2,000 stores. But whether that’s enough to overcome the company’s evident financial headwinds remains questionable.
For Opendoor Technologies, a money-losing residential real estate broker that quintupled in price during a few weeks this summer and nearly doubled in price on a single trading day in September, the story was that lower interest rates would spur more housing transactions.
Opendoor Chairman Keith Rabois bristled at a CNBC anchor’s description of the company as a meme stock during an interview in September, arguing that investors have begun to appreciate its “potential upside.” Beyond Meat didn’t respond to my request for comment on its share price. (Opendoor was the Roundhill ETF’s largest holding when the ETF was launched; more recently, the largest holding has been Beyond Meat.)
The economic fundamentals underlying the overall stock market don’t seem to have much to do with meme stock rallies. The original craze developed when interest rates were close to zero, making stocks look attractive compared with fixed income investments; the current craze has unfolded during a period of high interest rates and economic uncertainty — though that hasn’t stopped the major stock indexes from notching record highs lately.
Small investors would be well advised to keep in mind that the meme market could be the very definition of a risky place to trade. Meme investors tend to crowd into a stock after it has already begun its rapid march upward — and sometimes when that trend is about to reverse.
GameStop hasn’t fallen back to its pre-frenzy price in the low double digits, but with its current price below $23, investors who bought at its January 2021 peak have lost about 80% of their money. (The company staged a 4-to-1 stock split in July 2022, so one must multiply its current price by four to replicate its 2021 prices.)
The smart money says that the meme trade is with us to stay. There’s just too much uninformed, misinformed and self-interested commentary washing about in the investment sphere, too easily accessed by unwary and novice investors. Most of the advice being pushed on investors today isn’t much good, and what can be gleaned from promoters on Reddit even worse. The term “buyer beware” has never been so important.
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