Meme stock index backed by 4 quarters of doubling earnings growth

This article was written by Lindsay Varzarevsky, Keith Gerstein and Loic Frappier. It appeared first on the Bloomberg Terminal. 

Background

Strong earnings have encouraged meme stock traders to continue backing distressed companies, including favorites such as AMC Entertainment Holdings Inc. and American Airlines Group Inc. AMC posted a surprise quarterly profit as analysts underestimated the box office, with “The Super Mario Bros. Movie” bolstering the second quarter and “Barbie” and “Oppenheimer” doing the same in the current quarter.

The Solactive Roundhill Meme Stock Index has gained 58% this year. Quarterly earnings for the 23 of its 25 members that reported rose 143%, on aggregate, from a year ago. Earnings more than doubled for members of the index, which tracks U.S. stocks showing high social media activity and elevated short interest (rebalanced every two weeks). This is the fourth straight quarter where earnings at least doubled.

The issue

The AMC profit surprise was driven in part by U.S. movie attendance, which was 3.4% above analyst forecasts. ‌Despite the surprise profit, analysts expect upcoming quarterly losses, although operating income is expected to remain firmly in the black.

AMC projected 31% year-on-year growth in its box office in the second half thanks to blockbuster releases, though Hollywood strikes could delay some movie productions and releases.

AMC, which recently received court approval for its stock-conversion plan, has the highest Bloomberg one-year default risk on the MEME Index at 7.9% and is heavily shorted. Yet a rallying stock, improved earnings expectations, sales growth and frequent media coverage are positive signs. That’s quite a common trend based on the averages for the Investable Universe.

Among new meme stocks, Tupperware Brands Corp. rallied on Aug. 4 after reaching an agreement to restructure debt. Meanwhile, trucking company Yellow Corp. is seeing volatility of late after shutting down and later filing for bankruptcy.

The Bloomberg Default Risk Model indicates which meme stocks saw the largest improvement in creditworthiness. American Airlines and Mattel Inc. saw creditworthiness improve by four levels on the model’s scale this year, with Delta Air Lines Inc. and AMC seeing a three-level rise. The model calculates default risk using various metrics, including market capital, debt and cash flow. Leverage fell below prepandemic levels thanks to strong earnings, Bloomberg Intelligence writes.

Tracking

To evaluate earnings for the members of this index:

• Type “meme” in the command line and select Solactive Roundhill Meme Stock Index TR.
• Type “earnings analysis” in the command line and select EA – Earnings Analysis. The shortcut is MEME Index EA.
• Set Range to Current Season and Periodicity to Quarter. Members that reported saw an aggregate earnings surprise of 20%.
• Click the gray Growth tab.

For more information on this or other functionality on the Bloomberg Professional Service, click here to request a demo with a Bloomberg sales representative. Existing clients can press <HELP HELP> on their Bloomberg keyboard.