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Here's Why Stock Was Down Big Today

By Keith Noonan – Aug 31, 2021 at 5:18PM

Key Points

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Is the meme stock's incredible rally coming to an end?

What happened

Shares of (SPRT) slumped by double digits in Tuesday's trading, ending the day down roughly 13.8%.

A question mark made of cash.

Image source: Getty Images. 

The pullback for the stock has to be put in context. The company has recently attracted attention from Reddit's WallStreetBets board and other investors who favor meme stocks, and its share price has soared roughly 1,310% in 2021's trading despite today's sell-off. 

So what

Is there anything about the company's core tech-support customer services and security software businesses driving the incredible rally? Probably not. Support is posting meager revenue, and its sales have slipped nearly 43% over the last three years. 

Like GameStop and AMC Entertainment Holdings before it, the stock has attracted investor attention due to its high short interest. The last couple of years have seen a surge of new activity among retail investors, and that's paved the way for a massive short squeeze as the social media spotlight and emerging popular sentiment have prompted stock buyers to pour into beaten-down, out-of-favor companies in pursuit of explosive returns.   

Support's shareholders are also scheduled to vote on a potential merger with privately held Bitcoin miner Greenidge Generation on Sept. 10. With short squeeze momentum afoot and a potential push into crypto mining, shares could continue to be catnip for meme-stock investors. 

Now what

The company now has a market capitalization of roughly $759 million, which means that it's valued at roughly 19.5 times sales over the trailing-12-month period. That's a steep valuation for what otherwise looks to be a declining company, but conventional investing logic and valuation metrics sometimes go out the window in the era of meme momentum. 

It's been a year of "never say never" for some meme stocks. AMC Entertainment, for example, is up roughly 2,150% in 2021 despite substantial new share offerings and a core business with a questionable long-term outlook.

History suggests that meme leaders will eventually feel the pull of gravity and come to trade closer in line with their underlying fundamentals. But you can't rule out the possibility that Support and other hot meme tickets will enjoy more big gains the near term. 

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

Stocks Mentioned, Inc. Stock Quote, Inc.
GameStop Stock Quote
$23.39 (-8.49%) $-2.17
AMC Entertainment Stock Quote
AMC Entertainment
$6.75 (-9.40%) $0.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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