Why the shares of GameStop and AMC Entertainment have exploded today

Why the shares of GameStop and AMC Entertainment have exploded today

What happened

Actions of GameStop (NYSE: GME) and AMC Entertainment (NYSE: AMC) jumped 52% and 21%, respectively, on Thursday, helping them recoup a significant chunk of their recent losses.

So what

GameStop stock lost a third of its value on Wednesday after the video game retailer’s fourth-quarter sales and operating profits fell below Wall Street expectations. Analysts were also upset that GameStop did not provide much information on its digital transformation plan and declined to answer questions during its earnings call.

AMC Entertainment was also down sharply earlier this week, following news that Walt disney would make two of its upcoming films available on its popular Disney + streaming service the same day they start hitting theaters.

Traders fell back to GameStop and AMC Entertainment on Thursday. Image source: Getty Images.

Some investors apparently felt the sale was overdone. The Bulls have undoubtedly taken to heart the massive hike in Jefferies Financial Group’s price target for GameStop stock. Analyst Stephanie Wissink Has Raised Her Price Forecast By More Than tenfold from $ 15 to $ 175. Wissink speculated that GameStop would successfully transition its business from its physical stores to a predominantly e-commerce model, while also seizing opportunities in esports and collectibles.

It should be noted, however, that GameStop hired Jefferies to help with a potential stock offering. Jefferies also owns a significant portion of GameStop shares. Still, investors pushed GameStop shares to $ 183.75, or about 5% of Jefferies’ new target price.

Seeing the GameStop rally probably also helped build sentiment for AMC among traders on Reddit and other social media sites. Many individual investors have attempted to coordinate their purchases of shares on these sites over the past few months, which has helped fuel violent price swings in GameStop, AMC and other so-called stocks even – companies that have seen their shares on the Internet – – both upward and downward.

Now what

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

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