Don't believe the hype
Wise words from Public Enemy. And they're applicable to the stock market too. Just look at the lackluster performance for shares of GameStop and Peloton following their latest big news reveals.
The meme stock craze may not be entirely dead yet. But two of the biggest beneficiaries of pandemic market mania in late 2020 and early 2021 are both fizzling lately. And major news announcements Thursday aren’t doing much to change that for either GameStop or Peloton.
Shares of GameStop tumbled 2% in late morning trading, despite the news that Ryan Cohen (the Chewy co-founder turned activist investor who has made a big investment in the video game retailer) was named the company’s new CEO. GameStop fired Matt Furlong, a former Amazon exec that Cohen helped bring to the company, a few months ago. GameStop said it was looking for a new successor. But it seemed pretty obvious that the CEO search was going to begin and end with Cohen.
But investors may be concerned that there is nothing Cohen can do to save GameStop. The stock is down nearly 10% this year and is not far from a 52-week low. Traders may also be nervous given Cohen’s brief flirtation with Bed Bath & Beyond, which subsequently went bankrupt. It may not help that Chewy is now trading near an all-time low, showing that you need more than an inordinate amount of buzz on Reddit to compete with the likes of Amazon, Walmart and other digital and brick-and-mortar retail giants.
Speaking of social media overkill, is there any company that has gotten more attention than it deserves than Peloton? It’s always been my contention that the company’s bikes were a niche product, a status symbol for middle class and wealthy suburbanites. (Full disclosure, I have plenty of friends who have joined the cult of Peloton. I still don’t get it. I like to go to the gym and listen to music and not have overly enthusiastic trainers yelling at me to pedal harder and faster. But that’s just me.)
Anyway, Peloton’s stock has plunged from its highs. It is down nearly 40% this year. And shares were only up about 5% Thursday (and remains under $5 a share) despite posting even bigger after hours gains Wednesday on the news of a multi-year partnership with athletic/yoga apparel leader Lululemon.
Peloton continues to lose money. Sales growth is stagnant. This was a fad, plain and simple. It just doesn’t seem to be a viable standalone business. In other words, listen to Chuck D when it comes to meme stocks. Don’t believe the hype.