GameStop Stock Soars In Price Yet Again

March 8, 2021 John Galietta Top News 1

By JOHN GALIETTA

Gamestop shares soared once again rapidly and were even halted twice for volatility before the market closed on Feb. 24.

At markets close, the Texas-based video games retail chain stock was priced at $91.71, up nearly 104 percent from the previous day.

The Initial Surge

This unexpected surge comes as a shock to many of the retail investors who hastily sold off their shares after the initial trading frenzy surrounding GME stock at the end of January. Back then it rose 1600 percent in the span of a few days from $20 to $480.

The rapid rise of the stock in late January can largely be attributed to the work of individual retail investors, many of who are all members of the Reddit.com community/r/WallStreetBets. The WallStreetBets community took action with Gamestop being undervalued, in their opinion; the amateur investors many of whom are still in college also wanted to put the squeeze on hedge funds like Melvin Capital who were shorting the stock. Institutional investors like Melvin that were betting it was going to go down, were said to have racked up nearly $2 billion in losses from the unexpected rises, according to CNBC

Gamestop, the longtime video gaming,consumer electronic and gaming merchandise retailer is the world’s largest video game retailer with over 5909 stores worldwide. However the company declined during the mid-late 2010s due to the shift of video game sales to online storefronts and failed investments by GameStop in smartphone retail.

The saga took an unexpected turn on Jan. 28 when retail trading platforms like Robinhood and TD Ameritrade abruptly restricted most transactions involving GameStop stock with the latter citing their decision to do so to be “in the interest of mitigating risk.” 

The move saw immediate backlash from the retail investor community, and one of the most volatile trade days on record as the stock tanked from its intraday peak of $483.00 all the way down to $112.25 by the time markets closed. As February came and went, the price of the stock continued to drop at a rapid rate from its January peaks all the way to $42.00 at markets open on Feb.24.

A Second Wind

This latest jump in the price of over 104 percent follows the prior day’s announcement that the company’s Chief Financial Officer Jim Bell will resign in March to help Accelerate GameStop’s transformation

Investors who believe in the long-term viability of Gamestop as a company took that news to be a sign of faith that the company is on the right path towards shifting from relying on brick-and-mortar stores to a more sustainable e-commerce sales model. “Most people who go to a casino, even if they end up losing, will return as long as they had a win streak at some point. With GameStop, they are back,” said Craig Birk, chief investment officer at Personal Capital.

Peering through the Reddit Wall Street Bets page, the community seems to act under a hive mind mentality when it comes to the stocks they are trying to push. Post titles on the subreddit are riddled with diamond emojis (a reference to holding a stock long term) and titles like “TO THE MOON BABY” with rocket emojis, representing a belief that the stock will continue to rise. Just a simple glance at the front page of r/WallStreetBets and one can see how committed some members are, with one Redditor investing his entire year’s salary into Gamestop following last week’s surge.

An Analyst’s Perspective

Investors have long become used to the status quo where the stock market provides a place where people get independent signals and decide on their own if it’s time to buy or sell. Now, social networks can be a platform for the large-scale coordination of communities like r/WallStreetBets to artificially drive up the price of stocks beyond their actual market value. 

Bank of America analysts covering Gamestop stock have warned holders to cash out now while they still can profit, as they project the actual value of the stock to be a meager $10. Financial advisors around the nation like Anna Abma have criticized the Reddit community for manipulating the market for Gamestop shares due to the volatile nature of the stock market and the inherent risk present there.

[AUDIO:  Analyst Anna Abma talks about what the Gamestop volatility means.]

 

1 Comment

  1. I think the opening tweet you use is really strong. It brings up the question “Why care about Gamestop and the surge in stock?” (especially because the company has not been relevant for several years). Then, you proceed to answer that question pretty well. What I would want to hear next is the perspective of Redditors who have invested in Gamestop stock and why they made the decision.

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