Why do we care so much about AMC (AMC) and GameStop (GME) ? What does it really matter? And what about all of these other stocks that are adopted for the moment, a Wendy's (WEN) , a Bed Bath & Beyond (BBBY) or Corsair Gaming (CRSR) or other memes for the day, including some small-cap stocks to tiny to mention here? Should it bother anyone that AMD (AMD) spikes 15 points because it's raided by an amorphous group of individuals operating on their own discretion?
I think the short answer is no it doesn't. But that doesn't stop people from talking about them.
Take this morning. My colleague, David Faber, asked me a great question: Did I think AMC, the movie chain, was worth $21 billion given how much debt it has. I sniffed and said of course not.
I then asked him what does that matter, though. He pretty much agreed with me that whether we thought it was worth $21 billion or not is irrelevant.
So why does it hold such fascination with us? Why does it matter than GameStop's worth $16 billion?
I think it's because we can't understand why anyone would deliberately pay what almost has to be too much for any given stock given what we know of the fundamentals.
Now we have dozens and dozens of SPACs that may turn out to be worthless and nobody seems to give a hoot or a fig about those. These two, though, are big, visible companies that anyone who has examined them, who compares them, knows that they are overvalued versus where they were and their current prospects.
I have been hectored endlessly about these two even as I actually think that while they are currently overvalued there are many ways to make them less overvalued. The fact that I even think that matters irks these irascible folks who, frankly, don't even seem to care about things like valuation. They just want the other side of the trade to be crushed as if they are gladiators in the ring, two go in only one goes out alive. They can't seem to admit to more than that as a reason to own a stock and that's just plain foolish. There are plenty of sellers every day. They aren't all short. They are just people who want out.
What really bothers these angry stock renters though is anyone articulating the downside risks. Take AMC. I think Adam Aron is one of the great CEOs out there, the man who made Norwegian Cruise Line (NCLH) and Vail (MTN) what they are and brought out so much value at Starwood (STWD) . I have total faith in him to create as much value as possible. But it is my opinion that he needs even more money than he has raised because the Delta variant could depress attendance. By articulating that I have become the enemy because more stock issued means the shorts win.
Of course the opposite is true. The more money Adam has the more likely he can survive this patch. That's why we offer suggestions. Sure I think it is overvalued but the way to make it less overvalued is to have more money and less debt.
And GameStop? The value of stores in the mall has gone up in recent months. We have had a series of upside surprises by companies like Williams-Sonoma (WSM) using an omnichannel first approach to sell product and then brick and mortar second. GameStop can do the same. But, here again, is where I am despised: I cover all of the video game companies and digital has disintermediated the GameStop model and other than consoles, where the channel will be stuffed by year end, and there's no there there.
I want people to realize that if they own these stocks those holes need to be plugged. If they aren't, the shorts will not be forced to cover. The stocks will revert to the reasonable valuation that they are currently not at.
Owners: do not get angry at me for saying these things. They are facts, facts that I am sure the management teams know to be true. Or to go back to that question David Faber asked me about overvaluation. And AMC. Right now my view doesn't matter. But if nothing happens, it most certainly will.
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