GameStop’s Stocks Skyrocket, Here’s What Happened

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The stocks of the gaming merchandise retailer GameStop have been soaring thanks to the fight between short-seller Citron Research and retail investors of Reddit. Shares have skyrocketed 250% since the start of 2021 alone and it seems that the only way for the stocks in the near future is up.

Ryan Cohen – The Turning Point

The consumer electronic company’s shares used to be well below $10 until August 2020 when activist investor and Chewy co-founder Ryan Cohen purchased a large portion of GameStop’s equity, sending the share price soaring. Being the largest private investor of the company, Cohen interacted with the management and worked on turning the company around.

Short Selling

Cohen pointed that GameStop’s stock was one of the most used for short selling. Short selling is when investors borrow a stock hoping that its price will fall in the future. They then buy the stock when its price falls and return it. The difference in the selling and buying price is the profit.

According to FactSet, 138% of GameStop’s free float shares have been sold short, making it the most shorted name in the US market.

Short Squeeze

On January 11, Cohen joined the company’s board of directors. The news sent GameStop’s shares rocketing with the hope that Cohen would make a strategic change to the retailer. This created a “short squeeze” for the short-sellers. They were now triggered to buy the shares at a higher price to avoid potential losses caused by prices rising more. As more shares are bought, demand exceeds supply, fueling the rally more.

Conflicts On Reddit & Twitter

GameStop has been a trending topic for online chat rooms like Twitter and Reddit. It was picked up by the subreddit, r/wallstreetbets, which has over 2 million members and has previously driven rallies in surprising stocks like Lumber Liquidators and Plug Power.

The whole unexpected rally could not be missed by the vocal GameStop short-seller Citron Research which took to Twitter to announce that the stock would soon go back to $20. Citron later said that it would stop commenting due to attacks from the “angry mob” that has invested in the stock.

Citron had to cancel a live stream due to too many people hacking its Twitter account. The stream was going to detail why the stock will go back to $20 a video of which was posted on YouTube later.

Price Targets Wrecked

Analysts value the stock at around $12.5 per share with the high range at $22 per share, well below the current price of $114 per share. The same stock had fallen for six straight years before 2020 as earnings tumbled and a profit is not expected until fiscal 2023.

While the price targets have been shattered by reasons that perhaps go beyond the fundamentals, GameStop has surely become the latest game for day traders.

Source CNBC Bloomberg Game Stop

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