GameStop’s share price, which has fallen steadily over the past five years before starting to climb last fall, closed at an all-time high on Friday after a huge volatile week in which Reddit-organized day traders put a lot of effort into investing. sale of the stock.
Trading in GameStop shares on the New York Stock Exchange stopped twice on Friday, but not before the price peaked at $ 73.09. It closed at $ 65.01, beating the previous record of $ 63.30 on December 24, 2007. GameStop closed at $ 43.03 on Thursday, and when the boom began last week, it was about $ 20 per share.
What is happening? At the beginning of September, the stock starts from the $ 5 tolerance drums where it has been a little over a year. This is because dog food magnate Ryan Cohen (the founder of Chewy, which he sold for $ 3.35 billion in 2017) has just bought a 10% stake in the beleagured retailer for video games. He and two allies have since joined GameStop’s board of directors, and these positions could help Cohen respond to his tough conversation about where GameStop’s priorities should be. Cohen says the Texas-based company must completely abandon its continued brick-and-mortar retail focus and move toward a technology-driven vision. ‘
What is behind the striking share price increases this week, reports Ars Technica, is a big short pressure bubble. ‘In investment practice, known as short selling, a party borrows shares of a stock and sells them immediately at the current market price; if the price drops later (since a short seller bets it), the short seller buys back the same number of shares to return it to the moneylender – and earns money by having to repay less than the shares were worth at the time of borrowing.
In this case, the share price of GameStop rises, forcing these short sellers to buy more shares at a higher price to cover their positions. This has put GameStop’s share price in an upward spiral, which according to analysts such as Michael Pachter, Wedbush Securities, will soon come to an end.
“The smart money has already come in and is probably coming out,” Pachter told Ars.
The smart money came in more than a year ago, Motherboard reports. Some of it comes from investors at the under-edited WallStreetBets, a community that found itself ‘like’ 4Chan a Bloomberg terminal ‘.’ A Redditor posted screenshots of a $ 50,000 purchase of GameStop shares from 2019, when the share price was below $ 1.
This is because WallStreetBets (and others) have argued that if they were to buy into GameStop, short sellers would eventually have to cover their positions together and the price would rise higher. “There is probably no original stock issued by GameStop on the market,” Redditor said. In other words, GameStop has issued more shares than are actually available for purchase. Higher demand plus scarce supply is of course equal to a higher price, and short sellers who buy shares to cover their debt are of course the interest of new investors who want to shorten the stock.
Citron Research is one of the short sellers, and the company said on Friday that it was no longer commenting on GameStop’s share because an angry crowd had made a dangerously volatile stock, Bloomberg reported. Citron also claims that these evildoers tried to hack the company’s Twitter account after the company criticized the stock on Tuesday and then made plans for a live stream on social media to discuss it.
In the end, GameStop is worth $ 4.5 billion, its highest market capitalization since late 2015 and 18X that it was worth halfway last year.$ GME has increased by more than 1,300% in the past year and by 245% in 2021. Nothing material to the future of the company changed in that time.
– Jeremy C. Owens (@ jowens510) 22 January 2021
GameStop’s closing price on Friday brought in a market capitalization of $ 4.5 billion, almost 20 times higher than the company’s value at the end of July. But none of this means that GameStop has repaired or saved itself as a business. Indeed, its last quarterly earnings report, in December, showed that earnings were still declining and that share losses had increased by the same figures a year earlier.
Over the past two years, the company has closed more than 750 stores out of the 5,700 establishments it has had since 2019. That same year, the company fired top executives and laid off more than 100 corporate staff in a round of layoffs that also fired GameStop magazine Game Informer staff.