A chilling story of David and Goliath is unfolding on Wall Street about the stock price of a video game retailer who loses money. An army of optimistic, small-pocket investors is taking up GameStop shares. This is in direct opposition to a group of wealthy investors who are betting on the retailer’s share price drop.
The result: GameStop’s stock soared nearly 145% in less than two hours on Monday morning, only to return to earth to close with a modest 18% gain on the day. The stock was expected to jump again before the start of trading on Tuesday.
Overall, the stock has risen more than 400% in the past three months – unusual for a struggling company that lost $ 1.6 billion in the past three years. Its shares fell for six consecutive years before recovering in 2020. But GameStop has been the target of many professional investors who say the company will continue to sink as game sales continue to rise online.
Investor says family was threatened
These investors have been betting that GameStop’s stock will fall. The most public expression was made by short-seller Andrew Left from Citron Research, which said that, based solely on sales and profits, GameStop’s shares were worth no more than $ 20 each. He continued to predict that the stock would fall back to $ 20, even though it rose much more than it did in the last week.
The Left and others “shorted” the shares, meaning they borrowed the shares and sold them, hoping to buy them back at a cheaper price and pocket the difference. These bets have been disastrous recently.
GameStop was trading at less than $ 18 a few weeks ago. Its stock skyrocketed after the company appointed three new directors to its board, including a co-founder of online pet supply retailer Chewy, on January 11 to help accelerate its recovery. The idea was that it would help GameStop’s digital transformation.
Meanwhile, a cavalcade of smaller investors has been urging online to keep the momentum of stocks flying towards the moon. Many are presenting this as a battle of ordinary people against hedge funds and other big Wall Street companies.
In a bizarre twist, the normally frank left on Friday said it don’t comment anymore about GameStop’s actions, saying he and his family were threatened. A YouTube video detailing why Left thought the stock would fall has been removed from the video streaming site.
Game On
It took just five days for GameStop’s stock to double after the company announced its reorganization of the board. Last Friday, it shot up 51% in a single day – which is more than the stock market as a whole has risen in more than three years. For GameStop, the 51% movement was only the second best day in January.
The meteoric rise has led some short sellers to give up their bets, which is done by buying shares. This helped to further accelerate their momentum. On Monday, the push and pull was so extreme that GameStop’s stock trading was temporarily halted at least nine times due to volatility.
It closed on Monday at $ 76.79, after swinging between $ 65.01 and $ 159.18 earlier in the day.
“This is quite an experience for my first month in the stock market. Holding on to infinity,” posted a user in a Reddit discussion of GameStop’s actions. A moment later, another user said, “We are literally more powerful than the big companies now.”
That same sentiment was carried far beyond the Internet message boards to Wall Street itself.
“As someone who started trading stocks in the late 90s in college, I would always remember seeing when small retail trading groups were crushed by hedge funds and experienced short sellers,” said Edward Moya, a market analyst. OANDA senior management in a report. “What happened to GameStop’s actions is a reminder of how times are changing.”
Additional reports provided by Stephen Gandel of CBS MoneyWatch.