Paramount stock soared 37% in one day. Now it's a "meme" stock?

Paramount Skydance shares jumped 37% on August 13, posting their strongest gain since 1990 and becoming the second most actively traded stock in the S&P 500. The sharp rise caused speculation that the company was influenced by the "meme" wave. In turn, analysts of Guggenheim advise to buy shares in the expectation of growth in revenues Paramount Skydance due to obtaining the rights to broadcast fights UFC.

Shares of newly formed media conglomerate Paramount Skydance ended the Aug. 13 session up 36.7%. According to FactSet data, this is the largest one-day percentage increase since the paper began trading in June 1990. The stock also closed trading at its highest level since Dec. 28, 2023.

Paramount Skydance's trading volume jumped to 132.72 million shares, compared with an average of 11.95 million shares over the past 65 days. According to Dow Jones Market Data, on Wednesday the company's shares ranked second in terms of trading activity among the securities of the S&P 500 index, Barron's wrote.

At the trading on August 14, shares of Paramount Skydance fell by 5.5%. Since the beginning of the year the securities have grown by 36%.

Paramount Skydance did not issue any press releases before the jump in quotes, MarketWatch writes. The only report filed with the SEC was a disclosure on Form 144, published after the close of trading on Tuesday: it reported that former CFO Naveen Chopra decided to sell 101,083 shares. Paramount Skydance did not respond to the publication's request for comment.

The sharp rise in securities has given rise to talk that the media company may have fallen under the influence of a new wave of hype around meme stocks - so-called meme stocks, which rise sharply in price because of excitement in social networks, rather than because of fundamental financial indicators, writes MarketWatch.

"Paramount is a 'meme' stock!!!!!!!!!!!!!!Much of the stock is publicly traded...shocker," CNBC Mad Money host Jim Cramer wrote on social network X.

In response, one X user wrote that Paramount resembles a "meme stock on steroids" because of its small free float and sudden rise, but should be treated as "a special case of high volatility, not just a Reddit pampa."

The new Paramount has about 1 billion shares outstanding, and only about 30% are available to retail investors, Variety explains: the other 70% are owned by the family of Paramount Skydance CEO David Ellison and its investment partner RedBird Capital. Of that number, 89 million shares were in short positions as of July 31, Barron's explains.

Last week, Skydance Media and Paramount Global completed a protracted merger process. Immediately afterward, the combined company struck a major $7.7 billion deal with another major media conglomerate, TKO Group Holdings, to broadcast high-demand UFC fights.

Despite the positive news, shares of Paramount Skydance continued to decline along with securities of other media companies, MarketWatch notes. On Monday, they closed at an 11-month low, down nearly 24% in two weeks.

At the same time, Guggenheim analyst Michael Morris noted that investors have many reasons for optimism, writes Barron's. The agreement to broadcast UFC fights "is seen as a significant signal of the company's strategy to strengthen its sports and streaming assets," the analyst writes. Paramount will likely be able to monetize the deal at the same level as current rights holder ESPN, which translates to roughly $300 million in annual advertising revenue, he says. Guggenheim initiated coverage of the combined company's stock with a "buy" recommendation and a target price of $13. That's 15% higher than the stock price after a recent surge.

Analysts at Seaport Global also initiated coverage on Paramount Skydance shares this week with a "neutral" recommendation, and Morgan Stanley recommends selling them (Underweight), setting a target price of $12 - meaning the bank considers the stock 25% overvalued.

This article was AI-translated and verified by a human editor