Here’s proof that investing in meme stocks really works. BANG!

Meme stocks Blackberry, AMC, Nokia, and GameStop have all soared in 2021. But, For me, two of these four BANG stocks have become insanely overvalued today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The biggest investment story of 2021 must be the incredible returns from ‘meme stocks’. The popularity of these stocks on forums such as Reddit have driven their prices to unbelievable heights. Thus, market veterans have repeatedly issued warnings about these sky-high shares. But investing in meme stocks has worked brilliantly this year — so far, at least.

BANG go the meme stocks

Amusingly, the initials of four popular meme stocks form an appropriate acronym: BANG. These four shares are BlackBerry, AMC Entertainment Holdings, Nokia Corp, and GameStop Corp. It’s also notable that these companies form matched pairs. BlackBerry and Nokia, both pioneers in mobile telephony, have fallen on harder times. Meanwhile, cinema chain AMC and video-game retailer GameStop both provide screen-watching entertainment.

Although these meme stocks share similarities, their returns have actually been very widely dispersed. Here’s how each share has performed over six months:

Blackberry +71% | AMC +2,337% | Nokia + 36% | GameStop +1,004%

Again, these meme stocks pair up, but this time by returns. BlackBerry and Nokia have produced high double-digit returns since 7 January 2021, easily beating the S&P 500 index. But the truly staggering returns have come from GameStop (an 11-bagger) and AMC (a 24-bagger).

The maximum potential returns are astonishing

What’s absolutely unbelievable is how much traders could have made by buying these meme stocks at 52-week lows and selling at 52-week highs. This table shows how much incredibly lucky (or skilful) investors could have made in each of the four BANG stocks:

Stock Low High Maximum gain
BlackBerry $4.37 $28.77 558.4%
AMC $1.91 $72.62 3,702.1%
Nokia $3.21 $9.79 205.0%
GameStop $3.77 $483.00 12,711.7%

Once again, these meme stocks pair up by potential returns. A perfect trade would have tripled one’s money in Nokia and produced more than a six-fold return in BlackBerry. But a perfect low/high trade in AMC would have returned 38 times one’s money, while the same luck with GameStop would deliver 128-fold returns.

For me, two BANG stocks are doomed

If you put a loaded gun to my head and ordered me to buy two BANG meme stocks, I wouldn’t hesitate for a second. I would buy Nokia and (very reluctantly) BlackBerry. That’s because, though these shares look fully priced to me, they don’t trade at insane multiples of sales, profits, or earnings. That’s more than I could say for AMC and GameStop — two businesses both facing very strong headwinds.

When I look at AMC and GameStop, I’m reminded that ‘money moves markets’. Intense waves of momentum-following money has flowed into these two meme stocks over the past six months. But this flood of buy orders will do nothing to improve the future prospects of either company. AMC had a disastrous 2020, thanks to cinemas being closed during lockdowns. But its sales growth was also flat in coronavirus-free 2019. Likewise, GameStop is a bricks-and-mortar retailer in a world moving inexorably towards digital and online sales. Its revenues also declined steeply between 2016 and 2019. For me, trading in AMC and GameStop will continue to be very risky, difficult, and even dangerous in 2021/22.

Of course, I could be wrong. AMC and GameStop could stage miraculous recoveries through soaring sales growth in a post-pandemic boom. Likewise, new strategies or leadership teams could set both groups on paths to brighter futures. But I wouldn’t bet even a penny from my portfolio on this actually happening!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended BlackBerry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Is another stock market crash on the way?

The US stock market has already crashed in 2022, losing 25% of its value at its June low. However, UK…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A 6.2% FTSE 100 dividend stock I’d buy to boost my income

This FTSE 100 dividend stock offers a yield well above the index average. Here's why I'd buy it to supercharge…

Read more »

Abstract 3d arrows with rocket
Investing Articles

2 beaten down FTSE 100 shares that look ready for liftoff 

With the UK market showing strong signs of recovery, I am considering these two overlooked FTSE 100 shares for my…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

3 top UK shares for August 2022 and beyond

I've been buying top UK shares since late June such as these three companies that look attractive right now.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 live: the Footsie closes on 7,500

The Footsie, like many other global markets, has been pretty volatile in recent months, but today it almost closed above…

Read more »

Woman using laptop and working from home
Investing Articles

High-dividend stocks! Should I buy Royal Mail’s shares for its 7.3% yield?

The Royal Mail share price carries a dividend yield twice as large as the average for UK shares. Does this…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

UK shares: should I buy this oil and gas infrastructure stock?

Jabran Khan is looking for the best UK shares for his holdings. Could this oil and gas infrastructure provider fit…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

This REIT could be the perfect stock to supercharge my passive income stream!

Jabran Khan is looking for stocks to boost his passive income through dividend payments. He identifies one REIT to help…

Read more »