Facts about GameStop Stock: Short squeeze, The Buzz, What's the end game
|Facts about GameStop|
GameStop Latest News
*Authorities to examine the role of Reddit in GameStop shares saga
*The White House says it is “monitoring the situation” as GameStop stock rises
*GameStop stock closes at another record high, now worth US$23B
*Elon Musk tweets about GameStop stock, chaos ensues: Tesla CEO Elon Musk, the world's wealthiest person, who has also publicly battled short sellers, tweeted out Tuesday, "Gamestonk!" with a link to WSB. Gamestonk is a reference to GameStop and to "stonk," internet slang for stock.
After trading around $US4 in mid-July, GameStop (GME) was up to $US12 by October, and $US18 by the end of December. In the past six months, the company's stock has been steadily rising.
Since January 1, despite no real change in the underlying business, GameStop's share price has surged 1,915 per cent (from $US17.25 to $US347.51).
According to Bloomberg, the GameStop stocks are not only most traded in the US but in India too. The company was among the top five most traded stocks in Stockale, a platform for Indian retailers to trade in US equities.
What is GameStop?
GameStop is a an American video game retailer. Like most stores that still sell products in person, it has had a hard time lately as video game sales have moved online and as the Covid-19 pandemic keeps people away from stores. It's still in business, but few people expect it to grow again.
Social media is abuzz with the company's name as the market valuation of the company has gone up 1700 per cent from $2 billion to $24 billion in just a couple of days. This surprising rise in the stocks of a video game retailing company comes as amateur traders on the internet are rallying up the shares of the company in a power struggle against the huge hedge funds of Wall Street.
GameStop, listed on the New York Stock Exchange as GME, is a chain of video game shops in the US.
You'll find them in suburban shopping centres across the country, and they are the parent company of the Australian chain EB Games.
*Read More: US Stock Prices Today - GameStop shares fall 30%
Does this have anything to do with GameStop or video games?
A company’s stock price can be a reflection of its performance and investor sentiment – but GameStop’s last investor report, issued on January 11, showed that sales for the company were down around 3 per cent for the 2020 holiday season compared to 2019.
But it is worth noting that the market did respond positively to news that Ryan Cohen, co-founder and former CEO of e-commerce company Chewy, joined GameStop’s board of directors on January 11.
|People walk past a GameStop store in New York City on Wednesday.Michael M. Santiago / Getty Images|
Why GameStop has skyrocketed?
It’s not easy to explain what is going on with the GameStop shares, as is the volatile nature of the stock market.
GameStop stock price has skyrocketed — by somewhere around 8,000 percent over six months. The more complex answer is that its stock has become the central game piece of a financial power struggle between a major hedge fund, according to NBCNews.
Like many companies that are in rough shape, GameStop was the subject of what's called short selling, in which professional investors borrow shares of stock to sell and then buy back later so they can return it, which lets them pocket profits if the stock price goes down. They're basically bets that the company will fail.GameStop was one of the most shorted of all publicly traded companies. And then it became the source of a short squeeze.
Investors follow the "buy low, sell high" format when it comes to stocks. Short sellers do the opposite — they borrow and sell a stock when it's high and bet that it will continue to fall. If that doesn't happen and the stock price rises, short sellers are forced to cover their positions or buy more stocks — to minimize their losses.
Because short sellers — frequently hedge funds — in essence are betting against a company's success, it can be a risky position. Any positive news or enthusiasm for the stock will push up the stock's valuation, minimizing profit for the short seller. In the case of GameStop, chatter on massive online trading forums invigorated interest in buying the stock, pushing up the price, which in turn fueled more interest, NBC Note.
S3 Partners, a financial data company, said Wednesday that its analysis found that short sellers had lost $23.6 billion on GameStop this month.
Amateur or small retail investors with their 'dumb money' are playing the real game on Reddit under a community named wallstreetbets or WSB, against the well-established 'wall streeters'. The WSB community is upping the GameStop stocks against the huge hedge funds that had been shorting its stocks. It has now become a financial power struggle between the 'dumb money' and the wall street 'rulers'.
Because of GameStop’s poor performance over the past decade, alongside the growing digitalisation of video games, huge institutional hedge funds have been short-selling the shares of GameStop. Short-selling, to make a long story short, is essentially betting that a specific stock will fall in value over time, reporting by NME.
GameStop isn't the only company coming gaining traction without fundamental strength. In the past few weeks BlackBerry, Bed Bath & Beyond and even entertainment giant AMC have caught the attention of speculative traders.
Other companies on the list include AMC Theatres, Bed Bath & Beyond and even the mostly defunct Blockbuster. Remember those names.
What's the end game for the GameStop surgers?
Investors don't really believe that GameStop is suddenly the new Amazon or Apple or Google. It's still mostly a business that derives its value from brick and mortar stores in malls. Which, again, is not exactly a big growth area in the coming years.
The point is that there is no real point beyond showing up the pros -- proving to them that they aren't as smart as they think they are and that they don't have the ability to control everything.
At the source of the madness, the Reddit WallStreetBets forum, there is a fascinating if not-safe-for-work thread discussing the endgame for GameStop. “It’s rapidly becoming apparent that we will soon enter the GME endgame", says this user, Thicc Dads Club to Marketwatch.
That squeeze news may be here already — CNBC reported that hedge fund Melvin Capital has closed out of its short position, for an undisclosed loss. Andrew Left of Citron Research said he covered the majority of its short in the $90 price range.
In Wednesday premarket trades, GameStop shares jumped 75%. Of other shorted stocks that have been surging higher, movie-chain operator AMC Entertainment AMC jumped 112%, and software and services firm BlackBerry BB rose 5%.
Reddit forums trade tips on anything from bodybuilding to relationships and finances, but this one is about risky stock market investments. It’s been around for years – offering a highly variable level of return to its members.
However, this is a dangerous game that isn't likely to end well and rampant speculation ultimately leads to a bubble being burst and along the way there will be serious casualties.
What is GameStop worth now?
The price of GameStop shares closed at US$347.51 on January 27, which gives the stock a market cap of over $23billion. However, it has dipped slightly in after hours trading and is down three per cent as of January 28 at 10am GMT.
In the days prior, it had closed at $147.98 on January 26, $76.97 on January 25 and $65.01 on January 24.