Tesla has plunged over 50% this year. The meme stock was trading at a high of 390.91 on Dec. 31, 2021 and has fallen below its 50 and 200 day moving averages in recent sessions. Shares have been selling off this year after CEO Musk sold TSLA shares for the much-debated Twitter takeover. But they have been in a steep downtrend this week after news that inventory levels are rising in the Shanghai factory due to soft EV demand in China. So where is the meme action for the EV leader now?
Tesla is the top-trending stock on a popular social media site. That makes it a meme stock.
From June 2019 to November 2021, the stock rose 2460%, lifting from 14.90 to 381.50.
The hype had a lot to do with CEO Elon Musk's massive social media following, as well as speculative plays on Bitcoin and Bitcoin's meme, Dogecoin.
In February 2021, Tesla bought $1.5 billion Bitcoin and started to accept auto purchases in the digital asset. The crypto had a wild run-up after the news while Tesla's earnings for the quarter showed a tidy profit from the crypto's growth.
In fact, out of $438 million net income for the quarter, Bitcoin sales comprised $101 million, or about one-quarter.
TSLA stock posted the strongest 12-day gains in its public history in October and November 2021. In January this year, Tesla also started to accept top meme coin, Dogecoin, for select purchases.
The meme action for this popular stock appears to have shifted to inverse Tesla ETFs. The Direxion Daily Tsla Bear 1x Shares ETFhas been gaining 12% as TSLA fell over 14% since the start of December. The ETF moves 1 times in the reverse direction as Tesla stock.
Thursday's mini meme rally is pulling TSLA stock to positive territory. Gamestop earnings are pumping meme plays and Tesla is benefiting from that action. The inverse TSLS is down over 4% on Thursday after a four-day winning streak. However, as the rally fades, the meme action may be back in the inverse ETF.
Are Meme Stocks A Buy Now?
Meme stocks are speculative plays that are known for high levels of unpredictability because they can rally or crash in any market, and at any time. Their meteoric rises and heart-stopping crashes typically depend on social-media hype and online interest.
These stocks do follow traditional investment wisdom, which says you should buy stocks based on strong growth and performance records.
But memes are also characterized by frenzied price action in certain types of highly-popular stocks, causing prices to rise by 1,000% or more in a very brief time. And they can crash just as quickly.
Hyper-stock valuations for these companies depend, for the most part, on young fans and an anonymous following that can appear or disappear overnight.
Top Meme Stocks to Watch
GameStop saw sales fall 8% to $1.18 billion from $1.29 billion on Thursday. Loss per share of 31 cents was slightly better than the 35 cent loss the previous year. Shares of the popular meme stock have popped however over 10% on strong volume. The action has started a mini meme rally.
GME is a perfect meme stock. The video game retailer grew a fan base in late 2020. In January 2021, the stock shot up 1,625% to 81.25 and then crashed to 15 in February. However, it climbed back up to 265 by mid-March.
Notably, $2.25 billion in net sales reported that quarter marked just modest growth from 2020, suggesting the parabolic rally had nothing to do with fundamentals.
The decline and fall of Bed Bath & Beyond is a perfect example of meme stock mania.
The meme stock rose over 200% to 53.90 in January 2021 and settled back to long-term averages for the rest of the year. It then spiked more than 30% to $30.06 in March 2022, with frenzied buying after Ryan Cohen bought a 9.8% stake.
Shares then crashed in August after he exited his position. However, the company managed to raise capital to stay in business, inducing shares to surge 89% to 9.53 before diving again in September.
In 2021, Bed Bath & Beyond extended its debt exchange that was set to expire on Dec. 5. The debt swap will now be on offer till Dec. 19 and may be extended further. The extension shows that fewer investors are willing to bet on the meme stock as holiday shopping gets underway.
BBBY fell over 20% in November while the S&P 500 gained over 5%.
BBBY is trading near all-time lows but has rise 1% with GME's gains on Thursday.
AMC's Meme Play
AMC rallied in November this year after news that Amazon plans on spending $1 billion a year on movie releases last month.
AMC Preferred Equity (APE) share offering in August 2022 set off a big meme rally. The movie chain incurred massive debt during the pandemic and wants to use the new shares to pay down loans. Just last week, the company filed to sell 425 million APE shares to improve its balance sheet.
After GME's earnings, AMC has risen 1% in sympathy.
Nio's Surprising Meme Rally May Repeat
Chinese EV company Nio is known to investors for its strong fundamentals but this automaker is not immune to meme action. Shares are up nearly 7% today.
NIO shares were worth just $4 in early 2020. In October 2020, its popularity on social media channels triggered a massive rally, lifting the meme stock to 57.20, more than a whopping 1250% advance.
Meme stocks will be around as long as social media continues to impact markets. It is important for investors to understand the highly-erratic price action of these stocks often has nothing to do with fundamental or technical ratings.
At a minimum, these high-risk speculative plays require strong risk management skills and a willingness to place aggressive stop losses.
