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Why Are These Meme Stocks Plunging Today?

What happened

Easy come, easy go. After rallying sharply higher one day ago, meme stocks like IronNet (NYSE: IRNT), AEye (NASDAQ: LIDR), and Offerpad Solutions (NYSE: OPAD) were tanking heading into noontime trading on Friday.

IronNet was down 16%, AEye had tumbled 18%, and Offerpad fell off the table with a 19% drop.

On the other hand, SmileDirectClub (NASDAQ: SDC), which has also been a volatile issue since internet chat rooms began discussing its high short interest, saw its stock rise over 12% today.

Image source: Getty Images.

So what

Stock traders keep searching for the next AMC Entertainment or GameStop, behind which they can band together and rally around their shares to send the price soaring. The hope is to effect a short squeeze that would send the stock even higher.

Indicative of how powerful such forces can be, even though cybersecurity firm IronNet has a $2.8 billion market valuation after its stock more than quadrupled in value in a matter of weeks, it recently reported that it generated just $6.1 million in revenue, down 22% from a year ago.

It shows stock traders don't much care about the fundamentals of a business as long as they can get a short-term boost from a stock.

Now what

Meme stocks are companies that tend to rise and fall more on what's said in chat rooms than on the performance a company's executive suite can produce. So they will continue to be volatile, and investors would be better served looking for solid businesses instead.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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