While GameStop led the meme stock movement a year ago, today it's gains actually trail that of Bed Bath & Beyond and AMC, indicating that it might not be the focal point of the Wall Street Bets traders that it was early last year. The stock also trailed its meme stock peers on Friday, gaining only 4.3% in the previous session compared to double-digit gains for Bed Bath & Beyond and AMC.

What happened

Shares of GameStop (NYSE: GME) were rising today as part of a broader two-day rally in meme stocks, including AMC Entertainment Holdings (NYSE: AMC) and Bed Bath & Beyond (NASDAQ: BBBY). 

There was no particular news out on the video game retailer today. Instead, traders on Reddit's WallStreetBets teamed up to push the stock higher in a move reminiscent of GameStop's massive gains early last January.

As of 2:44 p.m. ET on Monday, the retail stock was up 8.1%.

So what

GameStop traders are trying the same play again. On WallStreetBets, traders are talking up GameStop and piling into the stock after shares have fallen back down to earth after a dramatic run-up last year.

GameStop stock is also not as heavily shorted as it once was. As of July 15, 22% of the float is sold short, meaning a substantial (but not overwhelming) percentage of investors are betting on the stock to fall.

Now what

Ironically, GameStop's meme bounce is coming at the same time as a sector slowdown in gaming. The NPD Group reported that consumer spending on video gaming fell 13% in the second quarter, and today, NVIDIA (NASDAQ: NVDA) stock fell after the chipmaker issued a disappointing second-quarter forecast due to a shortfall in gaming revenue. The video gaming industry was a big winner from the pandemic, so those headwinds are only natural as the pandemic effects fade.

GameStop stock rallied last year in part because Chewy Inc. (NYSE: CHWY) co-founder Ryan Cohen had begun accumulating a stake in the company, and he later joined the board, pushing the company to move deeper into e-commerce and areas like non-fungible tokens (NFTs). Though GameStop posted modest revenue growth in its most recent quarter, the company's losses actually widened, casting doubt on any potential turnaround.

While the stock could continue to rally with help from the WallStreetBets crowd, the fundamental case seems thin at this point.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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GameStop (NYSE: GME) is now fully controlled by the activist investors who were calling for change at the video game retailer.

Weeks after numerous executives either quit or were ousted from their jobs, and most of the board of directors declared they would not stand for reelection at the annual shareholders meeting, the company announced activist investor Ryan Cohen would become board chairman.

If it wasn't clear before, those who are looking to transform GameStop into the "Amazon of video games" are now firmly in charge.

Cohen was one of the loudest voices calling for change at GameStop. He advocated for the retailer to sell off most of its unprofitable physical stores and switch primarily to an online business model since the industry was swiftly moving to a digital and download future.

He was subsequently appointed to GameStop's board, where he was joined by another activist investor from the Starboard Value hedge fund. And along with a former Chewy (NYSE: CHWY) executive whom Cohen brought with him to the video game retailer, the trio was appointed to a special committee to oversee GameStop's evolution.

Now Cohen will serve as point man for the entire company.

Where once GameStop looked like it was on the verge of irrelevance in the face of a rapidly changing video game industry, Cohen has been able to attract executive talent from Amazon, Walmart, Chewy, and elsewhere to help transform the business.

Shares of GameStop are up over 800% in 2021, in large part because of the Reddit rally in January that sought to punish short-sellers for trying to drive the retailer's stock down to zero. But the price hike was ignited before that by Cohen's original appointment to the board.

The stock is now 5,600% higher than where it was 12 months ago. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Wall Street got off to a generally good start on Tuesday morning, as market participants seemed comfortable with the slow but steady pace of economic recovery. Although the latest data on retail sales was somewhat disappointing, investors like that a sluggish economy is likely to make the Federal Reserve keep interest rates low for longer. As of 10:30 a.m. EDT, the Dow Jones Industrial Average Index (DJX: .DJI) had moved lower by 70 points to 32,884, backing off from its record close on Monday. However, the S&P 500 Index (SP: .INX) had pushed further into all-time high ground with a 10-point rise to 3,979, and the Nasdaq Composite (NASDAQ: .IXIC) had risen 116 points to 13,575.

Many investors have focused their efforts on a very narrow part of the stock market, drilling down on companies that have become extremely popular among short-term traders. Stocks like GameStop Corp (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC) have gone from relative obscurity to the Wall Street spotlight. Yet as today's big moves lower for these two stocks show, it's extremely dangerous to speculate in high-profile stocks. As quickly as they move higher, they can give up those gains and leave traders with big losses.

Losing the game

Shares of GameStop were down more than 20% at 10:30 a.m. EDT Tuesday morning. The downward move took the video game retailer stock's losses since its best levels less than a week ago to more than 50%.

The biggest problem with investing in a stock that's a favorite among traders is that the reasons for any given day's rise or fall often has little to do with the company itself. In GameStop's case, one commonly cited expectation coming into this week was that investors flush with cash from the latest economic stimulus measure in Washington would buy more shares of the video game specialist. That would've been visible as a big bump in trading volume, but Monday's volume figures were subdued at best as the stock fell from $265 per share to $220. This morning's further decline took the stock to around $175 per share.

Even with the fall, though, GameStop shares remain at more than triple their worst levels in mid-February following the stock's initial rise and fall. Short-squeeze dynamics were primarily responsible for that first cycle up and down, but bullish shareholders pointed to news that Chewy Inc (NYSE: CHWY) co-founder Ryan Cohen was working more closely with GameStop to further its plans for a technological transformation.

Investors need to understand that Cohen's efforts will take time to bear fruit. In the meantime, volatile day-to-day swings promise to take GameStop shares on a wild ride -- and there could be plenty more ups and downs as traders fight with one another for supremacy.

AMC wants a Hollywood ending

Elsewhere, AMC Entertainment Holdings saw its stock pull back almost 10% on Tuesday morning. That still left the shares above where they'd started the week, with Monday's 26% rise outweighing the downward pressure today.

AMC's latest surge has come amid good news for the movie theater operator, as it has taken advantage of new rules in California to reopen theaters in key areas like Los Angeles. Already, popular theaters in Burbank and Century City are open to limited audiences, and if local officials concur, AMC will have all of its more than four dozen locations across the Golden State open by the end of this week.

Yet while traders focus on the likelihood that AMC will in fact make it through the pandemic without having to seek bankruptcy protection, many Wall Street analysts point to a cloudier long-term view. Moreover, given that AMC had to take on a lot of debt to survive, shareholders won't participate fully in any ensuing recovery in its business. That has some analysts calling for a plunge of 80% or more for AMC stock.

Don't get distracted

It's tempting to try to trade fast-moving stocks to score quick profits. But more often than not, traders find themselves getting burned in the inevitable downdrafts that follow big upward moves. Even long-term investors with bullish views must be wary of investing in AMC and GameStop in light of the disruptive trading activity that's dominating these two stocks right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Social Capital co-founder and CEO, Chamath Palihapitiya, has made a name for himself identifying excellent high-growth companies and taking them public using special purpose acquisition companies (SPACs).

Now, the noted investor is looking to profit from the recent gyrations of GameStop (NYSE: GME) stock. In a post on Twitter (NYSE: TWTR) Tuesday, Palihapitiya said:

"Lots of [GameStop] talk, soooooo .... We bought Feb $115 calls on [GameStop] this morning. Let's gooooooo!!!!!!!!" 

Buying calls is an options strategy investors can use when they believe a stock will rise.

Palihapitiya's position suggests that he believes the stock could gain as much as 50% from Monday's close — and do it in less than a month.

The post was a follow up to one on Monday in which Palihapitiya said:

"Tell me what to buy tomorrow and if you convince me I'll throw a few 100ks at it to start. Ride or die."

GameStop has been a battleground stock in recent weeks. Shares were selling for as little as $17.25 earlier this month, but several catalysts conspired to send them soaring.

News broke on January 11 that activist investor and Chewy (NYSE: CHWY) co-founder, Ryan Cohen. and two of his associates had gained seats on GameStop's board.

Cohen's firm, RC Ventures, had amassed a 13% stake in GameStop last year, making it the company's second-largest shareholder. Cohen's success with online retailer, Chewy, has given investors hope that he could help steer GameStop toward similar e-commerce results. 

The drama took another turn late last week when a tug-of-war broke out between noted short-seller Citron Research and a group of investors on the subreddit r/WallStreetBets. Citron Editor, Andrew Left, eventually threw in the towel on Friday as the short squeeze that the online group had sparked continued.

GameStop has gained more than 375% so far this year and was recently trading above $100 as investors bet on a turnaround for the company. Palihapitiya has now joined the fray.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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E-commerce company Chewy (NYSE: CHWY) is focused solely on the pet food and pet care category, while for Amazon (NASDAQ: AMZN), that's just one of countless categories and business lines. But within that niche, the two are battling aggressively for sales and dominance.

So which one is the better buy for investors today?

The everything store

Amazon barely needs an introduction – it's the global leader in e-commerce and cloud computing by a wide margin. And those two markets are beyond massive.

For example, the global retail market is estimated to be worth $25 trillion. The worldwide public cloud computing market is expected to top $330 billion this year. And Andy Jassey, the CEO of Amazon Web Services (AWS), also aims to push AWS into the $3.7 trillion enterprise IT market. Given Amazon's $348 billion of net sales over the last 12 months, it's clear it has much more room to grow.

And as we all know, the COVID-19 pandemic has accelerated the growth of e-commerce. Now that more people have become accustomed to shopping online, including for categories like groceries that they previously were more apt to buy in person, it is likely to remain a habit for many of them.

But the beautiful wild card of Amazon's business is its relentless culture of invention. The company is constantly investing in building new businesses that could potentially become huge – which is precisely how it grew from an online bookstore into a giant that competes in far too many markets to list here.

The pet specialist

While Amazon is an incredible business, Chewy is certainly no slouch. This is a company that was only founded nine years ago, and it's already poised to generate more than $7 billion of net sales this year. And it's still growing net sales at a rate of over 40%. This rapid success is all the more impressive considering Amazon's presence in the pet category.

And Chewy has plenty of room to keep growing. Pet spending in the US was $95.7 billion in 2019 and is forecast to reach $99.0 billion this year, according to the American Pet Products Association.

In addition, the portion of pet category spending that has migrated online is still relatively low, but it's expected to increase sharply. Six years ago, the online component of the category was about 2%. Last year, it reached around 15%. And it is now projected to surpass 35% by 2024.

Chewy is also expanding into new segments of the pet market such as pet telehealth and compounding pharmacy services. Management has also suggested it will eventually roll out a suite of online services, which could include things like a marketplace for groomers, dog walkers, and other service providers. That could be a lucrative new business for Chewy because it has a huge number of regular customers who could utilize those services. 

The better buy

Both Amazon and Chewy are fantastic at what they do, but Amazon is the better buy.

Clearly, Amazon is the much larger business – but that alone doesn't make its stock the better investment. Nor is the key point that it has vastly bigger addressable markets with far more white space available for it to exploit.

No, the real differentiator here is Amazon's culture of invention. A decade from now, Amazon will likely have multiple additional huge business lines that it's only getting started with today. We can't know for sure which ones they'll be, but we can anticipate that at least one of the areas where the company is investing will pay off in a big way.

It could be the global logistics business that it is investing aggressively in. It could be Amazon Pharmacy, which it just recently debuted. It could be physical retail stores, including supermarkets, that utilize its Amazon GO "just walk out" technology. It could be a self-driving robotaxi fleet, made possible by its recent acquisition of start-up autonomous technology company Zoox.

Or Amazon's biggest new business of tomorrow could be one we don't even know about yet. The beauty of all this is that Amazon's shares don't appear to have the value of these potential big new revenue drivers baked into the stock price yet, because these businesses barely even exist. That's why Amazon shares could actually remain consistently undervalued while also appreciating nicely in the years to come. Investors should buy this stock and hang on for a decade or longer.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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