THE NEUTRAL ZONE
Low-level day-traders on Reddit forums like “WallStreetBets” are the driving force behind the sharp increase in GameStop’s stock price, despite the struggling retailer losing money this year with no immediate rebound in sight. Shares of the video game retailer GameStop have jumped another 50% in early trading Monday, adding to an overall 245% rally in January.
Many investing experts are concerned about the organizing power that is growing in online communities, which creates an overinflated market driven by overvalued brands with cult followings. Bed Bath & Beyond alongside movie chain AMC were among other brick and mortar operations who saw spikes in stock prices despite sales being ravaged by the coronavirus.
Many consulting brokerage firms like Telsey Advisory Group have cited a disconnect in the fundamental valuation of GameStop, meaning it was the online traders’ actions, and not the perceived value of the company, that drove prices. “The sudden, sharp surge in GameStop’s share price and valuation likely has been fueled by a short squeeze, given the high short interest,” Joseph Feldman of Telsey stated.
A “short squeeze” happens when investors who “short,” or bet against, a stock now on the rise must buy more shares to cover the difference. What the traders on “WallStreetBets” believed was that if they bought enough of GameStop’s cheap shares, they could force all of the short sellers to cover their short in one massive swoop, thus driving the price up astronomically and, therefore, artificially.
The “WallStreetBets” traders were able to capitalize on the precedent set by hedge fund traders who used GameStop as a proverbial cash register by borrowing and selling more shares than the company itself was issuing. This strategy allows investors to sell stock they don’t have in hopes that it drives down the price, then they can buy the same amount of shares later at a lower price. With 138% of its shares being bought and sold short, GameStop has become the most shorted company on the U.S. stock market.
This section includes an aggregation of articles showing different viewpoints on the topic.
GameStop Stock Is Soaring Again. What’s Behind Its Remarkable — and Inexplicable — Run. – Barron’s – 1/25/2021
It’s also inexplicable. GameStop will open for trading Monday roughly 50% higher than prior cyclical peaks set in 2007 and 2013. The stock is trading for roughly 25 times the company’s best annual earnings of about $3.78 per share earned in 2016. GameStop has lost money in the past two years and is expected to post a full-year loss in 2020, 2021, and 2022.
The Gray Market: Why Young People Are Skipping the Art Market to Buy Stock in GameStop (and Other Insights) – Artnet News – 1/25/2021
In short, despite dangling its fattest price tag ever, GameStop was one of the hottest stocks on Wall Street. Should it have been, though? For comparison, Citron Research, an influential 20-year-old firm that bills itself as having “amassed a track record identifying fraud and terminal business models second to none among any published source,” projected last week that GameStop would go back to $20 a share.
Wall Street Bets Is Still Extremely Wrong On GameStop – SeekingAlpha – 1/24/2021
Despite what the stock shows, it will be a while before any progress is made in the business (if it happens). The 3 former Chewy (CHWY) members only joined the board this month. This could end poorly for the company if the stock crashes as the speculative bubble fizzles just as the company tries to improve the business.
GameStop’s Stock Price Soars In Surprising Twist – HYPEBEAST – 1/25/2021
While shorting the company’s stocks appeared to be the right move, the strategy quickly turned as it became “the single most shorted name in the U.S. stock market,” according to a report by CNBC. There is currently a storm of reports surfacing online about the company’s eventual fate, but the recent turn of events is an example of the market’s volatility and that anything could happen for GameStop.
This section includes an aggregation of tweets showing different viewpoints on the topic.