Lately, it seems that retail traders have been focused on Tupperware.
Late Thursday, the consumer products company announced it had finalized an agreement with its lenders to restructure its debt. Shares closed higher by 35.5% on Friday. Nearly four months ago, Tupperware indicated it could be headed toward bankruptcy.
While it’s normal for there to be stock price movement after a company makes a major announcement, Tupperware had been experiencing a market rally prior to the release of this news.
The share price of the iconic food container brand has seen a meteoric rise over the past two weeks. On Aug. 3, the company ended the trading session at $3.52 per share. That’s up nearly 480% from when its stock price hit a 52-week low of $0.61 per share on July 20.
So, what’s behind that upswing? Tupperware’s rapid rise is being fueled by retail traders who are buying up the stock and driving the price higher, according to Barron’s.
Other well-known companies have experienced similar boosts in the past, thanks to retail traders too. These so-called “meme stocks” include GameStop, AMC Entertainment and Bed Bath & Beyond.
What to know before investing in a meme stock
Think carefully before buying too much into the hype, says Douglas Boneparth, a certified financial planner and founder of Bone Fide Wealth. Boneparth is also a member of CNBC’s Advisor Council.
Sometimes, the build up around a certain stock at a given moment can lure people into investing in the company without doing proper research first, he tells CNBC Make It.
“People want to chase the momentum or popularity of something, hoping they’re not late to the party. But many times, they are,” he says.
Investing in meme stocks can be risky. They’re often prone to unpredictable fluctuations in value based on internet rumors and messaging boards.
Instead of buying in based on hype, investors should try to gain a clear understanding of how a company has operated over time before, says Boneparth. Publicly traded companies post quarterly earnings reports that contain key information, such as how much revenue a company has generated and its profits or losses.
But it’s OK to allocate a small percentage of your investment portfolio toward “having fun,” Boneparth says. Putting 10% of your portfolio toward specific companies that you’ve researched and strongly believe in can be a great way to invest in them without derailing your overall financial goals, he says.
“In the worst case scenario, they lose their money, which means they probably won’t do that again, but they’ve learned a valuable lesson,” he says. “In the best case scenario, they make money that they can reinvest into a more diversified portfolio.”
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