Equity markets have again displayed gravity-defying qualities this past week, fueled by a number of factors, from earnings results to hints of a thaw in the U.S versus the world trade war to a resurgence in retail investor euphoria in what is referred to as the meme stock space.  Accompanying the continued setting of new record highs across the broader indexes, some stocks have exploded. This can also be attributed to “FOMO”, or the fear of missing out incentive, but maybe this acronym can also be applied to something else, like “fear of meme overvaluation”.

Many analysts came into July a little trepidatious about how the latest quarterly earnings reports would like and while just over 10% of companies in the S&P500 and TSX have delivered results, over 80% have beaten street estimates for revenues and earnings.  True, the bulk of these positive headlines have come from financials and tech, but there is a sense among market participants that perhaps worst-case scenarios for the economy and corporate performance may not play out after all. For some large-cap companies that have strong balance sheets and management teams, a less friendly environment ahead may still not have a dramatic impact on their valuations, at least in a prolonged sense. The same cannot be said for smaller firms, many of which live in the so-called meme space.

Before we have a look at recent activity in this segment, let’s first define what this term means. Definitions do vary as some view these stocks as those that are propelled more by online hype versus traditional financial or fundamental metrics. These stocks can be characterized by having higher short interest positions (bets against the stock) and options volume, as well as having elevated retail enthusiasm. In the past, these stocks would be talked up in discussion forums like Reddit, but now communication of views has propagated across multiple social media platforms, like X. A sampling of companies that have made the meme headlines in recent weeks includes some well-known (like GoPro, Krispy Kreme and Beyond Meat), while others are less recognizable (like Opendoor and Kohl’s).

I have graphed the stock price for Opendoor (OPEN) in the chart above to illustrate what a meme surge looks like. The company is in the residential real estate sector and delivers an e-commerce platform that brings home buyers and sellers together. Its revenues have been steady at around $1.2 billion per quarter this year and it has a gross profit margin of close to 9%. Yet, it has negative EBITDA and cash flow. A year ago, the stock traded around $2.5, then fell steadily to a low in the 50-cent area in June. Fast forward to a couple of weeks ago and we see the stock snap through a dollar and all the way up to an intraday high of $4.97 on Monday. One hedge fund in particular has been talking positively about the company and how investors should pile into it. The next Cisco? Who knows, but the fact that the stock dropped back to almost $2 on Wednesday indicates a lack of conviction, even among the meme crowd.

The latest meme feeding frenzy also catapulted the likes of GoPro to levels not seen since early 2024 and sparked a bounce in that Ozempic favourite – Krispy Kreme – as well as Beyond Meat (remember when this stock traded north of $200 back in 2019?). Similar to Opendoor, none of these companies have provided much inspiration in terms of EBITDA performance nor forward guidance. As the chart below shows, these stocks enjoyed a recovery prior to the frenzy thanks to the generally risk-on mentality that has emerged as investors become numb (or dumb) to a world of double-digit tariffs. 

As meme stocks go, Kohl’s Corp is a bit of an outlier in terms of its market cap, revenue and share price.  Even at its worst point in April, when it traded near $6 or the lowest since the mid-1990s, it was higher than some of the other meme darlings. Still, it is a company on the ropes and nothing this year has altered the narrative. The CEO has been replaced (third one in four years), it is closing stores, laying off staff and even its e-commerce centre in California couldn’t stay afloat. The more than 100% lift from its April lows indeed sounds impressive, but as the chart below shows, it is possibly the last blip.

As much as it is tempting to look for some connection between meme mania and the broader market and, yes, we can ascribe FOMO to both segments to some degree; but that’s about it for similarities. There is a reason investors short stocks and that is because their own fundamentals are usually bad, or they are simply non-viable in terms of meeting the fundamental challenges surrounding them. As much as investors have warmed to the news of trade “agreements” with the U.S. and an earnings season that so far is supporting capital flows into equities, there are few additional incremental stimulants that are likely to emerge.

If we think back to 2020-21, when the meme phenomenon really took hold with the likes of GameStop and AMC, it was led more by folks who had either been displaced by the pandemic and had nothing else to do or were working from home and had some unsupervised time on their hands to play. AMC went from over $300 at the height of the mania to what is now a three buck and change stock, while GameStop at least still trades at a relatively respectable $23 versus its meme high of around $90, as you can see from the chart below.

Even if these meme episodes don’t offer any insight into broader market patterns nor give us a reading lens on the state of the economy, they do provide one invaluable lesson. Investing for most is about looking at the long-term and generating real risk-adjusted returns that are not only capable of ensuring adequate funds for retirement but protecting wealth from the ravages of inflation and excessive debt accumulation. For those that seek the thrill of meme stock investing I offer two prescriptions. Carve out an amount of capital to “play” with that, if destroyed, will not capsize your retirement fund mother ship, or go buy a really good Formula One simulator and have fun.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.   

Andrew Pyle