A dizzying story by David and Goliath takes place on Wall Street about the stock price of a money-losing video game store. An army of small-pocketed optimistic investors are buying shares of GameStop. That’s diametrically opposed to a group of wealthy investors who are betting that the retailer’s stock price will plummet.
The result: GameStop’s stock rose nearly 145% in less than two hours Monday morning, then returned to Earth to close with a modest 18% gain on the day. Shares were expected to jump again on Tuesday before the start of trading.
Overall, the stock is up over 400% in the last three months – unusual for one struggling business that has lost $ 1.6 billion in the past three years. Stock fell for six years before rebounding in 2020. But GameStop has been a target of many professional investors who say the company will continue to grow as game sales remain online.
Investor says family was threatened
These investors are betting that GameStop’s stock will fall. The most public statement was made by short-seller Andrew Left of Citron Research, who said GameStop’s stock was worth no more than $ 20 each based on sales and profit alone. He continued to predict that the stock would fall back to $ 20, even as it climbed well past it last week.
Left and others “short-circuited” the stock, meaning they borrowed and sold stock, hoping to buy them back at a cheaper price and take the difference. Such bets have been disastrous lately.
GameStop traded for less than $ 18 a few weeks ago. Its stock skyrocketed after the company appointed three new directors to its board of directors on Jan. 11, including a co-founder of online pet store Chewy, to help accelerate the turnaround. The thinking was that this should help GameStop’s digital transformation.
A procession of smaller investors, meanwhile, has urged each other online to let the stock’s momentum fly to the moon. Many call it a battle between common people and hedge funds and other major Wall Street companies.
In a bizarre twist, the normally spoken Left said on Friday he would no more comment on GameStop’s stock and said he and his family were under threat. A YouTube video explaining why Left thought stock was going to drop was removed from the video streaming site.
Game On
It took just five days for GameStop’s stock to double after the company announced that the board would be shaken. Last Friday, it is up 51% in one day – which is more than the overall stock market has risen in more than three years. For GameStop, the 51% move was only the second best day of January.
The rapid rise has prompted some short sellers to drop out of their bets, which is done by buying shares of the stock. That helped accelerate momentum even further. On Monday, the push and pull was so extreme that GameStop stock trading was temporarily halted at least nine times due to volatility.
It closed at $ 76.79 on Monday after hovering between $ 65.01 and $ 159.18 earlier in the day.
“This is quite an experience for my first month in the stock market. Hold on to infinity,” one user posted on a Reddit discussion about GameStop stock. Moments later, another user said, “We are now literally more powerful than the big companies.”
That same sentiment went well beyond Internet bulletin boards to Wall Street itself.
“As someone who started trading stocks in college in the late 1990s, I would always remember seeing when the small retail groups would be crushed by hedge funds and savvy short sellers,” said Edward Moya, senior market analyst at OANDA. in a report of. “What happened to GameStop’s stock is a reminder of how times are changing.”
Additional reporting provided by Stephen Gandel of CBS MoneyWatch.