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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

There’s no denying that the adoption of streaming video accelerated over the course of the past year and as the global leader, Netflix (NASDAQ: NFLX) was one of the ultimate beneficiaries.

The company added more than 36 million subscribers in 2020, bringing its worldwide total to 204 million, and helping push the stock price up 67% last year.

This, of course, raised the inevitable question about how Netflix will follow up such a banner year. Several developments in recent months provide insight into the company’s strategy and there’s mounting evidence that Netflix could continue its growth trajectory in 2021.

Let’s look at three reasons why now is the time to buy Netflix stock.

1. Cracking down on password sharing

Netflix has long tolerated a certain amount of account sharing, even going so far as to say it was “a positive thing”. Back in 2016, CEO Reed Hastings explained, “We love people sharing Netflix whether they’re two people on a couch or 10 people on a couch,” Hastings said. “That’s a positive thing, not a negative thing.” 

The company appears to have had a change of heart. In a move Netflix described as a test, some users got a message when logging into the service that read, “If you don’t live with the owner of this account, you need your own account to keep watching.”

Viewers could opt to receive a verification code by text or email to authenticate the account. They also had the option to verify later. “This test is designed to help ensure that people using Netflix accounts are authorised to do so,” the company said in a statement. 

Data suggests that as many as 33% of users share their Netflix password, according to data supplied by Magid Research. With 204 million subscribers, that could amount to at least 67 million unpaid viewers. Given the $14 monthly charge for Netflix’s most popular tier, the company is potentially forgoing more than $11 billion in revenue each year. 

This crackdown could help boost the company’s monthly subscriber base, thereby boosting revenue.

2. Licensing content?

Netflix has long argued that the biggest reason people subscribe to its service is the seemingly endless library of movies and television shows available on its platform. In-house titles including Stranger Things, Ozark, and The Queen’s Gambit have catapulted Netflix to the top of the streaming video industry, and the company has promised that new in-house movies will be released every week in 2021. 

The tech giant may be taking a page from the legacy media playbook and is exploring licensing some of its original content to other outlets, according to a report in The Information. Netflix is considering licensing some of its older movies and television shows, and has had discussions with Comcast‘s Peacock and ViacomCBS, among others.

While some Netflix originals, including Bojack Horseman and Narcos, have appeared on other networks, they were co-produced by other studios that retained the rights to license them in the future.

These recent discussions revolve around content that is solely owned by Netflix and could result in lucrative licensing fees for the streaming giant. It could also attract new Netflix subscribers into the fold by giving them an idea of the programming they’re missing out on.

3. Lower-cost subscriptions

Back in early 2019, Netflix tested a mobile-only tier in several countries that was significantly less expensive than its existing offerings. The lower-cost tier was available on just one mobile phone or tablet at a time with standard streaming quality.

The test was ultimately a success and later that year, the company announced the mobile-only plan was here to stay, initially rolling the plan out in India.

At the time, Netflix said it “will be an effective way to introduce a larger number of people in India to Netflix and to further expand our business in a market where Pay TV ARPU [average revenue per user] is low (below $5)”. 

Bank of America Securities analyst Nat Schindler suggests this might be a precursor to a tier that caters to “price-sensitive consumers,” citing the success of the test in India and other countries.

Fuel in the tank

With the accelerated adoption of streaming video that occurred during the pandemic, it’s widely believed that some of Netflix’s growth in 2020 came at the expense of slower subscriber additions in 2021. That could certainly be the case. However, the streaming giant was cash flow positive last year, and it expects that to be the case going forward.  

Given the evidence, there are plenty of reasons to believe that for long-term investors, the Netflix growth story is far from over. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Danny Vena owns shares of Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Comcast. The Motley Fool Australia has recommended Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Qantas Airways Limited (ASX: QAN) is completely dominating domestic aviation in the post-COVID era, holding 74% of the market in December.

That’s according to the Australian Competition and Consumer Commission’s Airline Competition in Australia report released Wednesday, which showed industry-wide, passenger numbers were still just 41% of pre-COVID levels.

“Australia’s domestic airlines are starting to experience a recovery in their passenger numbers, but it remains a very challenging environment,” said ACCC chair Rod Sims.

Intrastate flights dominated in 2020 due to state border closures, but interstate travel made a comeback at the end of the year. December saw 69% of domestic passengers flying to a different state, compared to just 26% in September.

The return of interstate travel gave Qantas’ biggest rival Virgin Australia a boost, with its market share going from 20% to 24% in the final quarter.

Qantas shares were down 0.36% to go for $5.46 in early trade on Wednesday.

There was no ‘expensive’ period last Christmas

It seems Regional Express Holdings Ltd (ASX: REX)’s challenge of the Qantas-Virgin duopoly had a profound effect on domestic aviation.

Even though Rex only started flying between metropolitan cities this month, including the lucrative Sydney-Melbourne route, its mere threat meant tickets remained inexpensive over Christmas.

“Domestic airfares normally peak over holiday periods but we didn’t see that happen in December, partly because the three airline groups offered competitive promotions in a bid to get customers back in the skies,” Sims said.

“With three carriers on Australia’s busiest route, competition has been vigorous and consumers are the beneficiaries of this. Each airline will need to work hard to win over consumers.”

Rex plans to add more big city flights – Adelaide, Gold Coast and Canberra are coming on board within weeks.

Regional Express shares were up 1.19% in early Wednesday trade, to sell for $1.695. They were just 71 cents one year ago.

Plenty of support for aviation sector

The industry is awash with government subsidies at the moment.

The Regional Airline Network Support and Domestic Airline Network Support schemes were brought in during the COVID-19 downturn last year. It was due to end in March but has since been extended to the end of September.

Then last week the federal government launched its new Tourism Aviation Network Support Program, which sees air tickets to 13 tourist destinations 50% subsidised.

Sims noted that the 3 major airlines are targeting slightly different demographics.

“It appears that Virgin and Rex are both targeting business and leisure customers who value a certain level of service but are also mindful of the price,” he said.

“This may leave Qantas facing less competition for premium customers, and through its Jetstar brand, for budget holiday customers as well.”

The ACCC’s quarterly report on the aviation industry was commissioned by treasurer Josh Frydenberg last year in the midst of the coronavirus downturn.

More reading

• Why the Regional Express (ASX:REX) share price is flying high today
• Share market on watch over AstraZeneca vaccine fears
• The Flight Centre (ASX:FLT) share price is up 40% in six months: Can it go higher?
• Leading brokers name 3 ASX shares to buy today
• Why brokers think the Qantas (ASX:QAN) share price could fly 17% higher

Motley Fool contributor Tony Yoo owns shares of Qantas Airways Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Fonterra Shareholders’ Fund (ASX: FSF) shares are edging higher in morning trade after the organisation released its results for the six-months ending 31 January 2021. At the time of writing, the Fonterra share price has inched 0.22% higher to $4.66. In comparison, the S&P/ASX 200 Index (ASX: XJO) is currently trading 0.3% lower. 

Let’s take a look at how Fonterra has been performing.

What’s driving the Fonterra share price?

The Fonterra share price is on the rise despite the fund reporting a 5% decline in total revenue on the prior corresponding period (pcp) to NZ$9.9 billion. Gross profit, however, improved by 3% to total NZ$1.7 billion.

While reported net profit was down 22% on the pcp (NZ$391 million), normalised net profit came in at NZ$418 million, representing a 43% jump on the pcp. Similarly, earnings before income tax (EBIT), were down 18% on the reported numbers (NZ$657 million) but up 17% on the normalised numbers (NZ$684 million).

The normalised numbers reflect the underlying performance of the business. It does not take into account costs associated with the fund’s divestment from Chinese dairy farms, which is still pending.

Breaking down EBIT by export region, we can see what helped to salvage Fonterra’s results in the period and where its growth opportunities exist.

Normalised EBIT from Africa, the Middle East, Europe, North Asia, and the Americas was down 7% on the pcp. It totalled NZ$201 million. Asia Pacific (excluding China) normalised EBIT was up 9% to equal NZ$190 million. Normalised EBIT from Greater China was up an eye-watering 38% to total NZ$339 million. Over the period, 50.4% of all Fonterra’s earnings came out of China alone.

Fonterra still forecasts the farmgate milk price to be NZ$7.30 to $7.90 per kilogram of milk solids (kgMS). Fonterra updated the market on this earlier in the month.

Earnings per share (EPS) for the fund are forecast to be between 25 and 35 cents. Fonterra will pay an interim dividend of 5 cents per share.

Words from the CEO

Fonterra CEO, Miles Hurrell, commented on the results, saying: 

While down on this time last year at a headline level, the 2020 financial year benefited significantly from the divestments of DFE Pharma and foodspring®.

Despite the major impact COVID-19 is having around the world, the Co-op is staying focused on what it can control – looking after our people, making progress on our strategy to drive sustainable value for New Zealand milk and remaining committed to our 2021 priorities. Those priorities are:

• Our Co-operative, which is about being there for farmers and employees;
• Performance, which is about hitting our financial targets; and
• Community, which is about exceeding customer expectations, supporting communities through our nutrition programmes and making New Zealand’s low carbon farming model a powerful point of differentiation.

Mr Hurrell also said inventory was up on the pcp. He attributes this mostly to shipping delays resulting from the pandemic.

Fonterra background

Fonterra is the largest company in New Zealand (by turnover and market capitalisation) and one of the largest dairy producers in the world. In fact, 30% of all global dairy exports are produced by Fonterra. Around 11,000 New Zealand dairy farmers own Fonterra as a co-op.

It was created out of the deregulation of the New Zealand dairy industry. As it has near-monopoly status, it sets the price it will pay dairy farmers for its products. This is the farmgate price. The price is calculated using global dairy commodity prices. This is because Fonterra exports 95% of all its product.

Fonterra share price snapshot

Unlike other dairy producers, such as the A2 Milk Company Ltd (ASX: A2M) and Synlait Milk Ltd (ASX: SM1), the Fonterra share price is up on this time last year.

One year ago, the Fonterra share price was trading at $3.78 and soon after hit a 52-week low of $3.24. Investors having bought Fonterra shares this time last year would be sitting on a tidy 23.28% return on investment.

More reading

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• What’s lifting the Fonterra (ASX:FSF) share price today?
• Court rules on Bega Cheese (ASX:BGA) and Fonterra (ASX:FSF) trademark dispute
• Fonterra (ASX:FSF) share price on watch after narrowing earnings guidance

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Metcash Limited (ASX: MTS) share price is rebounding on Wednesday after dropping lower yesterday.

In morning trade, the wholesale distributor’s shares are up almost 3% to $3.48.

Why is the Metcash share price pushing higher today?

Today’s gain appears to have been driven by a positive reaction to its strategy update by analysts at Goldman Sachs.

According to the note, the broker has retained its buy rating and lifted its price target on Metcash’s shares to $4.03.

Based on the current Metcash share price, this price target implies potential upside of almost 16% over the next 12 months. And if you include dividends, the potential return stretches to over 21%.

What did Goldman say?

Goldman was pleased with its strategy update and believes the market’s negative reaction to it yesterday was wrong. It explained:

“MTS has delivered its latest strategy update, highlighting a shift in the company’s strategy to a growth footing but also flagging the business’ strong capital position by increasing its guidance for dividend payout ratio at the same time.”

“The market’s first impression was taken negatively, likely due to a lack of capital management and the higher than expected capex program.”

“However, there are a number of positives we think are important from this update: (a) management are increasingly confident in the underlying earnings stability of the divisions, (b) the positive demand profile for the housing sector is being addressed with an increased capex allocation to drive store growth in Hardware, (c) the newly acquired Total Tools acquisition is being positioned to take advantage of the strong demand profile from the housing cycle and growth of the format with a significant store expansion program and JV investment.”

In addition to this, the broker was pleased to see the company revise its dividend policy favourably. It now has a payout ratio of 70%, up from 60% previously. Goldman feels this is a sign that management and the board have confidence in its prospects.

All in all, with the Metcash share price trading at just 12x estimated FY 2021 earnings, the broker sees plenty of value in its shares today. This could make it one for investors to consider.

More reading

• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops
• Why Advance Nanotek, BHP, Limemade, & Metcash shares are sinking
• ASX 200 up 0.8%: Metcash update, tech shares rebound, PointsBet acquisition
• Why the Metcash (ASX:MTS) share price is in focus
• 5 things to watch on the ASX 200 on Tuesday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Webjet Limited (ASX: WEB) share price is on course to record a decent gain on Wednesday.

In morning trade, the online travel agent’s shares are up 2% to $6.32.

Why is the Webjet share price pushing higher?

The catalyst for the strong gain by the Webjet share price today appears to be a broker note out of Goldman Sachs this morning.

According to the note, the broker has initiated coverage on the company’s shares with a buy rating and $7.36 price target.

Based on the Webjet share price at yesterday’s close, this price target implies potential upside of 21% over the next 12 months.

Why is Goldman Sachs positive on Webjet?

Goldman believes that Webjet is well-placed to benefit from the travel market recovery. It explained:

“Webjet, the #2 bed bank globally and Australia’s leading domestic Online Travel Agent, looks well-placed to benefit from the travel recovery. Webjet’s OTA profitability was already one of the strongest among competitors prior to COVID-19 and we expect this to improve as activity levels return to normal. We believe bed bank players will take on increased importance as independent hotels compete amid the reduced demand.”

“We forecast Webjet to post an EBITDA CAGR of +9.5% over FY19-24E. We believe its OTA business offers a balanced exposure to the domestic-led recovery and expect it will maintain a strong balance sheet. We initiate with a Buy and a 12-month TP of A$7.36, with potential upside of 21.1%.”

Acquisition opportunities

The broker also suspects that Webjet could be in a position to bolster its future growth with acquisitions once trading conditions return to normal. It said:

“Webjet has said it has maintained its interest in looking for attractive acquisition opportunities that might arise, especially adjacent to the Bedbanks business. Taking the DOTW and JacTravel acquisitions as a point of reference, these businesses were priced at an average of 0.4x EV/TTV. We calculate headroom availability to the group for acquisitions as equal to the sum of cash balance and undrawn facilities, net of the minimum reserve requirement (A$125mn) — this was a total of c. A$258mn as at the end of December 2020.”

“Based on the historical acquisition multiples, we estimate the group has enough capacity to acquire a business with TTV of up to A$650mn in the pre-pandemic scenario, representing c. 30% of FY19 TTV. That said, we think valuations could be more attractive in the current environment, implying potential for a sizeable acquisition if the right opportunity was to come by.”

Valuation

Goldman acknowledges that the Webjet share price looks overvalued based on its short-term earnings. However, it feels it is attractive on a normalised basis. It explained:

“The absolute enterprise valuation is up 9.1% vs pre-pandemic times (using 21 Feb 2020, the pre-pandemic peak, as the reference period). On a relative valuation basis, WEB trades at a 143% premium to industrials ex financials, vs a pre-pandemic average of a 2% discount. However on a normalized forward earnings basis (FY24), WEB currently trades at 17.6x P/E.”

More reading

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• ASX 200 unmoved, Flight Centre soars, Afterpay keeps falling
• Should the JobKeeper payment be replaced with discounted airfares?
• ASX 200 down 0.9%: Flight Centre & Webjet jump, Afterpay sinks

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Lake Resources N.L. (ASX: LKE) share price is on the move on Wednesday following the release of an update on its Kachi Lithium Brine Project.

At the time of writing, the lithium producer’s shares are up over 10% to 38.5 cents.

What did Lake Resources announce?

This morning Lake Resources announced that it has refreshed its flagship Kachi Lithium Brine Project Pre-Feasibility Study (PFS) based on revised lithium price estimates.

According to the release, this has increased the project’s net present value (NPV) to US$1.6 billion (A$2.1 billion). This compares to its previous NPV estimate of US$748 million (A$1.18 billion). In addition to this, Lake is assessing a potential expansion to the production of lithium carbonate equivalent (LCE) from Kachi. 

The release explains that the Kachi Lithium Brine PFS is now based on 25,500 tpa of lithium carbonate production with an average price of US$15,500 per tonne for high-purity battery grade lithium carbonate (CIF Asia). This compares to its original estimate of US$11,000 per tonne.

Management advised that it made the decision to lift its estimates following ongoing discussions with potential off-takers for high purity lithium carbonate and recent projections from Benchmark Mineral Intelligence.

Lake’s Managing Director, Steve Promnitz, commented: “Updated lithium prices demonstrate just how financially robust the Kachi project is, which could potentially be enhanced with a production expansion. Significant new production is required to meet the forecast growth in demand from EVs and energy storage over the next 10 years.”

“The Kachi project remains highly scalable and the Company is working towards an expansion which would make it globally significant in terms of high purity lithium carbonate production, and well-positioned to supply the expected deficit in battery grade product over the next few years.”

“This is an important differentiator of Lake as it continues to engage with major participants in the battery materials supply chain and electric vehicle makers. These participants are seeking high purity product, that can be scaled up to meet demand and has a measurable ESG benefit. Lake ticks all those boxes,” he concluded.

More reading

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• Lake Resources (ASX:LKE) share price rockets 19% on positive update

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The 5G Networks Ltd (ASX: 5GN) share price is on the move this morning after announcing a new acquisition.

At the time of writing, the telecommunication carrier’s shares are up 5% to $1.30.

What did 5G Networks announce?

This morning 5G Networks announced an agreement to acquire 100% of leading dedicated cloud provider, Intergrid Group.

According to the release, the two parties have agreed a purchase price of $3 million. This represents a 4x normalised EBITDA multiple. The purchase price comprises $2.5 million in cash and $0.5 million in 5G Networks shares. The cash consideration will be funded from its existing cash reserves.

Synergies of $0.5 million per annum are expected to be realised in the first 12 months.

What is Intergrid?

Intergrid operates cloud hosting services within data centres strategically located in seven major cities across both Australia and New Zealand.

The Intergrid network is connected to over 40 data centres, optimising speed and web content delivery by reaching most of the Australian population in under 20 milliseconds. It supports high-speed streaming to households, powers Ag-Tech Internet of Things devices on farms, supports critical government applications, and everything in between.

The company currently generates annual revenue of $2.5 million and normalised EBITDA of $0.8 million.

5G Networks Managing Director, Joe Demase, commented: “5GN are really excited to be working with Intergrid in growing our digital infrastructure capabilities. In a very short period they have developed a valuable customer base with many blue-chip ASX 200 and government customers who are committed to pursuing a cloud experience which is unique and world class.”

“The capability for 5GN to now offer (Bare Metal) services at the edge, means that we can deliver dedicated cloud or hosting solutions pretty much to the front door of every major organisation in Australia. This enables content and application performances which are absolutely best in market.”

More reading

• Why the Lake Resources (ASX:LKE) share price is shooting 10% higher today
• Xero (ASX:XRO) share price down 23%, is it a buy?
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• GameStop and AMC are riding the stock market roller coaster again
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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends 5G NETWORK FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Xero Limited (ASX: XRO) share price has dropped 23% over the last three months, could it be worth a buy right now?

What’s happened to the Xero share price recently?

Well, the Xero share price did end up 4% higher yesterday. Plus, it has had a strong performance during COVID-19 – the share price has gone up 59% over the last year (with the starting point a year ago not quite being the bottom of the COVID-19 crash).

However, plenty of ASX growth shares have seen their share prices decline during 2021. Other names to fall include Afterpay Ltd (ASX: APT) and CSL Limited (ASX: CSL).

Some brokers don’t think that the Xero share price is going to perform well over the next 12 months.

Broker Morgan Stanley has a share price target of $100 for Xero – this suggests it could fall 15% over the next year.

UBS has an even worse outlook for Xero shares, with a price target of $79.50. That means the broker believes it could drop by around a third over the next year, despite the large decrease already.

An acquisition

Xero recently made an acquisition called Planday. A workforce management platform with more than 350,000 employee users across Europe and the UK that simplifies employee scheduling, allowing businesses to forecast and manage their labour costs.

Not only will Xero be able to diversify its global revenue further, but the acquisition will allow Xero to strengthen its offering to clients and potentially cross-sell services. Xero will then take Planday’s offering into other markets where Xero operates, supporting Xero’s long-term growth plans.

This acquisition will cost €155.7 million and have a “modest” negative impact on Xero’s FY22 earnings before interest, tax, depreciation and amortisation (EBITDA) according to management.

Is the Xero share price a buy?

There is no doubt that the market thinks Xero is a quality business. It’s why it has a $16.6 billion market capitalisation, according to the ASX.

In the FY21 half-year result, it reported a number of growth metrics. It said that total subscribers grew by 19% to 2.45 million, annualised monthly recurring revenue grew by 15% to NZ$877.5 million. The gross profit margin improved from 85.2% in the prior year, to 85.7%. It generated NZ$120.7 million of EBITDA (up 86%), it made NZ$34.5 million of net profit after tax (NPAT) and NZ$54.3 million of free cash flow.

But no business is a buy at any price. UBS and Morgan Stanley don’t think the Xero share price will do very well over the next year.

Brokers like Citi think that there are question marks over the business when government support comes to a stop – it doesn’t think Xero is an obvious buy despite all of its qualities.

But Xero says that it’s positive on the outlook, saying:

Xero is a long-term orientated business with ambitions for high-growth. We continue to operate with disciplined cost management and targeted allocation of capital. This allows us to remain agile so we can continue to innovate, invest in new products and customer growth, and respond to opportunities and changes in our operation environment.

More reading

• 2 of the best ASX growth shares to buy immediately
• ASX 200 jumps, Pointsbet reveals acquisition, Metcash drops
• ASX 200 up 0.8%: Metcash update, tech shares rebound, PointsBet acquisition
• 5 things to watch on the ASX 200 on Tuesday
• 5 things to watch on the ASX 200 on Monday

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wall Street got off to a generally good start on Tuesday morning, as market participants seemed comfortable with the slow but steady pace of economic recovery. Although the latest data on retail sales was somewhat disappointing, investors like that a sluggish economy is likely to make the Federal Reserve keep interest rates low for longer. As of 10:30 a.m. EDT, the Dow Jones Industrial Average Index (DJX: .DJI) had moved lower by 70 points to 32,884, backing off from its record close on Monday. However, the S&P 500 Index (SP: .INX) had pushed further into all-time high ground with a 10-point rise to 3,979, and the Nasdaq Composite (NASDAQ: .IXIC) had risen 116 points to 13,575.

Many investors have focused their efforts on a very narrow part of the stock market, drilling down on companies that have become extremely popular among short-term traders. Stocks like GameStop Corp (NYSE: GME) and AMC Entertainment Holdings Inc (NYSE: AMC) have gone from relative obscurity to the Wall Street spotlight. Yet as today’s big moves lower for these two stocks show, it’s extremely dangerous to speculate in high-profile stocks. As quickly as they move higher, they can give up those gains and leave traders with big losses.

Losing the game

Shares of GameStop were down more than 20% at 10:30 a.m. EDT Tuesday morning. The downward move took the video game retailer stock’s losses since its best levels less than a week ago to more than 50%.

The biggest problem with investing in a stock that’s a favorite among traders is that the reasons for any given day’s rise or fall often has little to do with the company itself. In GameStop’s case, one commonly cited expectation coming into this week was that investors flush with cash from the latest economic stimulus measure in Washington would buy more shares of the video game specialist. That would’ve been visible as a big bump in trading volume, but Monday’s volume figures were subdued at best as the stock fell from $265 per share to $220. This morning’s further decline took the stock to around $175 per share.

Even with the fall, though, GameStop shares remain at more than triple their worst levels in mid-February following the stock’s initial rise and fall. Short-squeeze dynamics were primarily responsible for that first cycle up and down, but bullish shareholders pointed to news that Chewy Inc (NYSE: CHWY) co-founder Ryan Cohen was working more closely with GameStop to further its plans for a technological transformation.

Investors need to understand that Cohen’s efforts will take time to bear fruit. In the meantime, volatile day-to-day swings promise to take GameStop shares on a wild ride — and there could be plenty more ups and downs as traders fight with one another for supremacy.

AMC wants a Hollywood ending

Elsewhere, AMC Entertainment Holdings saw its stock pull back almost 10% on Tuesday morning. That still left the shares above where they’d started the week, with Monday’s 26% rise outweighing the downward pressure today.

AMC’s latest surge has come amid good news for the movie theater operator, as it has taken advantage of new rules in California to reopen theaters in key areas like Los Angeles. Already, popular theaters in Burbank and Century City are open to limited audiences, and if local officials concur, AMC will have all of its more than four dozen locations across the Golden State open by the end of this week.

Yet while traders focus on the likelihood that AMC will in fact make it through the pandemic without having to seek bankruptcy protection, many Wall Street analysts point to a cloudier long-term view. Moreover, given that AMC had to take on a lot of debt to survive, shareholders won’t participate fully in any ensuing recovery in its business. That has some analysts calling for a plunge of 80% or more for AMC stock.

Don’t get distracted

It’s tempting to try to trade fast-moving stocks to score quick profits. But more often than not, traders find themselves getting burned in the inevitable downdrafts that follow big upward moves. Even long-term investors with bullish views must be wary of investing in AMC and GameStop in light of the disruptive trading activity that’s dominating these two stocks right now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Chewy, Inc. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post GameStop and AMC are riding the stock market roller coaster again appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Kate O’Brien owns shares of Apple and Rio Tinto Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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