The rise of meme stocks is a unique situation that has captivated both investors and economists in recent years on the stock market. These are stocks that see an unexpected increase in value because of internet forums and social media hype rather than their actual financial performance or innate worth. An example would be when a group of investors orchestrated buying, which caused stock prices for companies like GameStop and AMC to soar to unimaginable heights during the pandemic. This event has sparked discussion on the radical changes to the market that meme stocks may bring about.
The Revival of Tupperware
Tupperware is a company that has recently received the meme stock treatment. As investors hyped the company on Reddit and other websites in July, the producer of plastic food containers saw a nearly 800% increase in the price of its shares. Tupperware had recently experienced extremely difficult times. Sales of the once-iconic brand decreased as consumers' preferences for plastic food containers changed.
As a result, Tupperware's financial situation became more and more dangerous, and the company faced being delisted from the NYSE after failing to comply with the exchange's rules. For a 30-day trading period, its market valuation fell below $50 million and its share price fell below $1. Tupperware was in danger of going out of business and becoming irrelevant. However, the surge allowed Tupperware to avoid bankruptcy by raising its market value to nearly $400 million.
Other Meme Stocks Comebacks
Along with Tupperware, faltering businesses like Bed Bath & Beyond and Rite Aid are also believed to be making a comeback as meme stocks. Bed Bath & Beyond has recently had many difficulties, which led to the company declaring bankruptcy in April 2023. As a result, some of Bed Bath & Beyond's assets are to be purchased by rival Overstock during the bankruptcy proceedings.
Prior to its downfall, Bed Bath & Beyond's stock price briefly soared due to speculative investors and social media excitement. The stock price was separated from the company's poor underlying financials by this surge. At the end of the meme stock frenzy, the business situation took back control and Bed Bath & Beyond's stock plummeted.
Rite Aid has “had [its] short interest above 20% in mid-July [and] saw its stock price soar as much as 68% on Wednesday despite a lack of fundamental news”. Despite the pharmacy chain's ongoing financial difficulties, short-term share price increases have been driven by social media meme influence. This shows how high volatility may result from investor interest even in businesses with declining performances.
Overarching Effects of Meme Stocks
Although some investors may experience short-term benefits and excitement from meme stocks, the effects on the underlying firms themselves are more complex than that. As was the case with Tupperware, sudden spikes in stock price fueled by social media influence may temporarily raise a company's market worth. These momentary increases, however, typically do not indicate major improvements in the company's main financial conditions.
It can be difficult for a company to manage shareholder expectations when a meme stock, like Tupperware, has a share price surge of 800% in a matter of months. The inflated stock price is not based on current financial conditions. Extreme volatility in meme stocks can also attract groups of short sellers who are looking to profit when the intensity for speculating disappears. This might lead to additional price volatility unrelated to company performance.
The discrepancy between meme stock prices and companies is even more problematic when it comes to raising capital. A firm like Tupperware might raise more money if it attempts to have additional shares at the height of a meme stock rise because of the inflated stock price. However, rather than being based on the viability of the underlying company, this cash would be raised purely on speculative frenzy.
Companies may be overpriced and burdened with the effects of decisions made while prices were disconnected from financial situations once the meme stock effect has subsided. Essentially, corporations may be compelled by excessive stock volatility to make financial choices based on irrational excitement instead of rational business judgment. Although meme mania may come and go, their effects on business decision-making can last far longer than the changes in stock price.
Meme stocks like Tupperware, Bed Bath & Beyond, and Rite Aid emphasize an interesting new era in the history of the stock market. While some people have greatly benefited from the extreme fluctuations, investing in meme stocks has the danger of instigating substantial losses if done at the wrong moment. It is unclear if the current meme stock frenzy will bring about long-lasting change or if it is just another fad fueled by speculative thinking. However, for the time being, meme stocks demonstrate how investors and social media have the power to drastically change share values based on excitement and popular culture as opposed to objective financial data. The dynamics between Wall Street institutions and regular traders will mostly be heavily impacted by these effects.
Sources
