The return of “Roaring Kitty” sparked an eye-popping rise in GameStop shares on Monday, but that speculative rally for a company that’s not yet profitable is likely to end badly again. Roaring Kitty, who inspired the 2021 meme stock craze, has resurfaced online with a cryptic image showing a man leaning forward in a chair. This is enough to trigger a buying frenzy among amateur traders. GameStop shares soared 110% and were halted due to volatility. However, from a fundamental perspective, the brick-and-mortar video game company’s stock price does not deserve such a rise. In late March, GameStop said it was laying off a number of employees to reduce costs and reported a drop in fourth-quarter revenue as competition from e-commerce rivals intensified. “I don’t know what fundamentals would drive the stock to such high levels,” Wedbush analyst Michael Pachter of GameStop told CNBC. “They can’t be profitable.” “They made $6 million last year and burned it. Cash,” Pachter said. “We expect them to lose $100 million a year going forward. It’s a race to see if they can close stores fast enough to limit losses, but they have no plan to show they can grow revenue or profits and their core business is in decline .” GME 5D mountain GameStop Pachter rates GameStop an underperform with a price target of $5.60. GameStop hit a high of $38.20 on Monday. During the 2021 frenzy, GameStop shares hit an all-time intraday high of $120.75, adjusting for a subsequent 4-for-1 stock split in the summer of 2022. Other meme names crashed together. GameStop hit a three-year low of $9.95 last month. The resurgence of the meme stock craze comes during a period of relative calm for the broader market, as the first-quarter earnings season comes to an end and the Federal Reserve’s next policy meeting is about a month away. The Cboe Volatility Index, known as the VIX or Wall Street’s fear gauge, rose above 20 last month but has been hovering around 13 recently. Jeff deGraaf, chairman and chief executive of Renaissance Macro Research, said that while he is not involved in trading GameStop at all, he may seek to take advantage of wild swings in meme stocks. “We don’t trade these things, but generally speaking, we are sellers of overbought downtrends. That’s what GME is all about to us,” DeGraaf told CNBC. Still, a spike in animal spirits could spell trouble for broader markets, which are already vulnerable to expected changes in the direction of interest rates. “If this continues to be the type of market we’re in, maybe Jerome Powell should raise interest rates to the moon,” Bernstein analyst Mark Schilsky said in a note to clients.
