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A meme stock’s downward spiral: GameStop’s 14-year Fortune 500 run comes to an end

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Meme stocks are making your 401(k) returns look minuscule. Since the start of 2021, the S&P 500 index has climbed 12.6%—which, if the year ended now, would be an above-average annual return. But that pales in comparison to shares of [hotlink]GameStop[/hotlink] (ticker: GME)—the alpha dog in the meme stock space—which are up a staggering 1,218% during that same span.

When members of the r/WallStreetBets subreddit started buying GME and other meme stocks, including companies like BlackBerry (+109%) and AMC (+2,160%), in January, it looked like a classic pump and dump. Or a joke, in their eyes, meant to damage some hedge funds (read: Melvin Capital) while retail investors made a quick buck. For these three stocks, in particular, the dump hasn’t come. But that doesn’t rule out a pullback. Indeed, the prices of many of these meme stocks are completely out of whack with fundamentals.

Just how detached are meme stocks from reality? There’s no better example than GameStop.

When the 2021 edition of the Fortune 500, a ranking of the 500 largest U.S. publicly traded companies by revenue, was published last week, it did not have GameStop on it. That marked the end of GameStop’s 14-year streak on the list—including a No. 464 placement last year.

Falling off the Fortune 500 list is just one of many signs that GameStop’s business model is floundering. Back in the aughts, GameStop stores in shopping malls and strip malls were packed with teenagers looking to buy and trade in games for their Xboxes and GameCubes. But in the early 2010s, that brick-and-mortar model was disrupted by the digitization of the video game industry, as more gamers began downloading new titles rather than buying physical copies. GameStop’s revenue, which peaked at $9.6 billion in 2012, had fallen to $6.5 billion by fiscal year 2020. Then the pandemic took it down another notch. During its 2021 fiscal year, which ran through Jan. 31, GameStop sales totaled $5.1 billion. Since 2012, its sales are down 47%.

In other words: Meme stock investors are wildly excited about a company whose sales are barely half of what they were nine years ago.

The downward trend has forced GameStop to shutter locations: Its global store count has fallen from more than 6,600 stores in 2012 to 4,816 as of Jan. 31. Last year alone, GameStop permanently closed 693 stores, and the company says more closures are on the way this year.

How can GameStop, a company clearly in a downward spiral, see its shares climb more than 1,200%? It boils down to the power of Internet hype. Message boards like r/WallStreetBets, which has more than 10 million users, can generate enough excitement among large-enough groups of retail investors to drive up stock prices.

Then again, this hyperbolic stock growth could be the saving grace for these meme-stock companies—by helping them raise money to bolster their businesses. In April, GameStop hauled in $551 million after selling 3.5 million shares at sky-high levels. The company hopes to use the money to accelerate its e-commerce pivot. On Thursday, AMC announced that it had also cashed in on its meme stock bounce: The movie theater chain sold more than 11.5 million shares for $587 million. How will AMC use the windfall? In a recent filing the company said it’s considering “attractive theatre acquisition opportunities,” including former locations of Pacific Theatres and ArcLight Cinemas.

But there is a bit of irony to the move: When a company issues new shares, that’s technically bad for existing shareholders, because the value of their ownership stake is diluted. Essentially, their share of the company’s future earnings becomes smaller. But that’s an argument based on fundamentals—and that’s not how meme-stock investors roll.

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This story was originally featured on Fortune.com