Editorial Type:
Article Category: Research Article
 | 
Online Publication Date: 09 Jun 2022

Beware of Meme Stocks

CFA, ASA
Page Range: 14 – 22
DOI: 10.5791/22-00001
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Starting at the end of 2020 and continuing through 2021, numerous publicly traded companies saw their shares became “meme” stocks often related to trading activity sourced to the Reddit board WallStreetBets. Most market observers think of the GameStop Corp (NYSE: GME) saga as the most infamous example of a meme stock, but many other stocks have been come to be known as meme stocks. If not careful, appraisers can encounter issues in both the income approach and the guideline public company method if they were to include a meme stock in developing an estimate of beta or selecting valuation multiples. This article covers an overview of the GameStop saga and illustrative issues using GME stock prices in an appraisal, a discussion regarding testing the efficiency of GameStop shares using the Cammer Factors, listing and returns analysis of other stocks labeled as meme, and discussion of various methods for appraisers to identify whether a stock has become a meme stock and suggestions on how to minimize the impact.

Copyright: © 2022, American Society of Appraisers
Figure 1
Figure 1

GME Implied EV to EBITDA Multiples (October 1, 2020, to December 31, 2020)

Figure 2
Figure 2

GME Implied EV to EBITDA Multiples (January 4, 2021, to January 29, 2021)

Figure 3
Figure 3

GameStop OLS Beta 2-Year Look-Back, Measured Weekly

Figure 4
Figure 4

Meme Total Returns—Most Volatile (December 31, 2020, to December 31, 2021)

Figure 5
Figure 5

Meme Total Returns—Second Most Volatile (December 31, 2020, to December 31, 2021)

Figure 6
Figure 6

Meme Total Returns—Third Most Volatile (December 31, 2020, to December 31, 2021)

Figure 7
Figure 7

Meme Total Returns—Fourth Most Volatile (December 31, 2020, to December 31, 2021)

Figure 8
Figure 8

Meme Total Returns—Fifth Most Volatile (December, 31, 2020, to December 31, 2021)

Figure 9
Figure 9

GameStop Share Price and Volume (October 1, 2019, to December 31, 2020)

Figure 10
Figure 10

BlackBerry OLS Beta, Two-Year Look-Back, Measured Weekly (June 29, 2020, to June 30, 2021)

Contributor Notes

Joseph Thompson is a Principal at the Griffing Group, a Chicago-based valuation consulting firm. In addition, he is an adjunct professor at DePaul University.

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