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Memes stocks are now just something we’re getting used to here at The Armchair Trader. You can sometimes see them coming as social media fuels a frenzy of demand for a stock that many investors know little or nothing about, but they skip all the same.
Newegg Commerce Inc (NASDAQ: NEGG) is just the latest in what is now a long line of stocks that are fueled by a large number of Robinhood traders in the United States. It was a stock that was trading around $ 13 at the start of this month and now sits close to $ 70.
Founded by Fred chang in 2010, who is still CEO, Newegg justifies some of the enthusiasm of investors, it must be said. It ticks many boxes for membership to the same stock. For starters, it takes up the tech / gaming space which immediately makes it more favorable for stock traders who understand the dynamics of PC components.
Newegg sells the parts its customers need to build computers. He ticked the second box of all memes stocks i.e. he produced a catalyst that got day traders interested. In this case, he advertised a $ 99 service that assembles the parts you order into a desktop computer. No more buying off-the-shelf PCs, no more building it yourself and finding out that you forgot a key piece of hardware. For those looking for the ultimate game engine without the patience to put it all together, it was nectar.
I use a custom built PC myself and have to admit it’s the best computer I’ve ever used, but the components cost me less than $ 400. The equivalent factory-made version at a UK retailer would likely be three times as expensive. Newegg challenges in this regard because it brings a much higher level of customization to the market.
But is Newegg stock really worth $ 70?
CNBC expert Jim Cramer is skeptical of Newegg, calling it “total BGL play” – that is, bagging, shooting and liquidating inventory. He rightly wonders if Newegg is worth a market cap of $ 20 billion (Wednesday, July 7) when it was only worth $ 10 million in June. Introducing an assembly service is a good idea, but it doesn’t really change the game.
This brings me to the last part of the meme stock formula, which is short term interest. Traders alike LOVE stocks where there is considerable short interest, as they want to try and force hedge funds and other traders with bare shorts to scramble to cover them. This creates a forced buying activity which will only drive up the price.
The short-term interest rate exceeded 30% at the end of June and had caught the attention of traders on Reddit. Newegg stock was not SO liquid at the time, so again traders felt this would be an attractive proposition if enough buy orders lined up on the right side of the trade. However, it seems that the news from the PC assembly service more than anything else has caused a lot of buying activity.
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