GameStop’s stock price, which had fallen steadily over the past five years before it started rising last fall, closed higher on Friday after a tremendously volatile week in which Reddit-organized day traders created many problems for companies short investment – sell the stock.
Trading of GameStop shares on the New York Stock Exchange was halted twice on Friday, but not before the price peaked at $ 73.09. It closed at $ 65.01, beating the previous record of $ 63.30 set on December 24, 2007. GameStop closed on Thursday at $ 43.03, and when the raise started last week, it was around $ 20 per share.
What is happening? Well, at the beginning of September, stocks started to emerge from the $ 5 crisis, in which they were just over a year ago. That’s because dog food mogul Ryan Cohen (the founder of Chewy, who sold for $ 3.35 billion in 2017) had just bought a 10% stake in the beleaguered video game retailer. He and two allies have joined GameStop’s board of directors, and these positions can help Cohen act in his tough conversation about where GameStop’s priorities should be. Cohen says the Texas-based company needs to give up its continued focus on brick and mortar retailing and move to a “technology-based view”.
What is behind the impressive rise in stock prices this week, reports Ars Technica, is “a massive short-term bubble”. In the investment practice known as short selling, a party borrows shares of a stock and sells them immediately at the current market price; when the price falls later (as a short seller is betting it will fall), the short seller buys back the same number of shares to return them to the creditor – and makes money by having to pay less than the value of the shares at the time of the loan.
In that case, GameStop’s stock price is rising, forcing these short sellers to buy more shares at a higher price to cover their positions. This put GameStop’s stock price in an upward spiral, which analysts like Wedbush Securities’ Michael Pachter believe will soon come to an end.
“Smart money has already come in and probably came out,” Pachter told Ars.
Smart money came in more than a year ago, Motherboard reports. Part of this came from investors in the subreddit WallStreetBets, a community that calls itself “How 4Chan found a Bloomberg Terminal”. A Redditor posted screenshots of a 2019 $ 50,000 purchase of GameStop shares when the stock price was below $ 1.
That’s because WallStreetBets (and others) reasoned that if they bought on GameStop, short sellers would have to cover their positions together, raising the price. “There is probably no original stock issued by GameStop left on the market,” noted one Redditor. In other words, GameStop has issued more shares than are actually available for purchase. The higher demand plus the scarce supply equates to a higher price, of course, and short sellers buying stocks to cover their debts – along, of course, with the interest of new investors who want to sell the shares – is what is driving demand.
Citron Research is one of those short sellers, and on Friday the company said it was no longer commenting on GameStop’s shares because “an angry crowd” had made them dangerously volatile, Bloomberg said. Citron also claims that these scoundrels tried to hack the company’s Twitter account after the company criticized the actions on Tuesday and made plans for a live broadcast on social media to discuss this.
Ultimately, GameStop is worth $ 4.5 billion, its biggest market capitalization since the end of 2015 and 18 times what it was in the middle of last year.$ GME now it has increased by more than 1,300% in the past year and 245% in 2021. Nothing significant in the company’s future has changed in that period.
– Jeremy C. Owens (@ jowens510) January 22, 2021
GameStop’s closing price on Friday gave the company a market capitalization of $ 4.5 billion, almost 20 times greater than the company was worth at the end of July. But none of this means that GameStop has really recovered or saved itself as a business. In fact, its latest quarterly earnings report in December showed that revenues were still falling and losses per share were increasing compared to the same figures from the previous year.
In the past two years, the company closed more than 750 stores from the 5,700 locations it had until 2019. In the same year, the company got rid of top executives and laid off more than 100 corporate employees, in a round of layoffs that also destroyed the team at Game Informer magazine, owned by GameStop.