Needham & Company senior analyst Laura Martin explains why video game sales skyrocketed during the pandemic, including the lack of live sports, and sees that the video game industry’s revenue will continue to rise.
On Reddit and the chat forums, day traders shouted from the rooftops: Buy GameStop!
Many people have done so, taking the actions of the formerly dying mall retailer to new heights in what has become a gladiatorial match between redditors and Wall Street shorts. GameStop Corp. rose 145% to $ 159.18 on Monday morning, before sinking below Friday’s close only to rise again to $ 73.50, an increase of 13%.
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The move, which extended GameStop’s earnings for the year by about 300%, is the latest sign that frantic trading by individual investors is leading to large swings in the stock market.
| Ticker | Safety | Last | change | Change % |
|---|---|---|---|---|
| GME | GAMESTOP CORP | 76.79 | +11.78 | + 18.12% |
Volatility led the New York Stock Exchange to briefly interrupt trading nine times. This followed an eventful pre-market session in which GameStop’s stock price skyrocketed and more than 10 million shares were traded, well above the average.
The recovery was driven by investors encouraging each other on social media to accumulate GameStop shares and options.
The buying pressure has prompted money managers to abandon the substantial bets that the stock will fall, investors and analysts said.
This resulted in a small squeeze, in which rising prices prompt investors to buy back shares they had short sold to cut their losses, pushing stocks further up.
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GameStop did not respond to a request for comment on Monday’s decision.
The company has become a high-profile battleground between optimistic day traders, especially on the Reddit online platform, and hedge fund short sellers, who have been betting against stocks.
GameStop has been the most traded share by Fidelity Investments’ clients in recent sessions, with purchase orders exceeding sales orders by more than four to one, according to the broker.
“We broke. We broke the GME at the opening, ”wrote a Reddit user on Monday after the NYSE halted trading, referring to GameStop’s stock market ticker.
Some Reddit users prompted others when GameStop shares were later reversed, using an emoji to describe the stock as a rocket to the moon. “Hold the line! There is no room for doubters, ”wrote one. Another loss lamented: “I’m still new to this and I bought it to double my positions to $ 137. Please say I’m fine. “
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The dispute for the company, with a modest market value of around $ 5 billion at the close of Friday and four years of falling sales, exemplifies the growing influence of retail investors. Many entered the market during the coronavirus blockade, meeting on online platforms to exchange trading ideas and boast about winning bets.
GameStop’s recovery is one of a series of attractive market moves to raise concerns among fund managers, some of whom say trading by individual investors is pushing stock prices out of fundamentals.
In another case, a tweet from Tesla Inc. chief executive Elon Musk about the messaging app Signal caused the share price of the unrelated biotech company Signal Advance Inc. to rise.
“This is the new day and time when nobody listens to analysts: ‘Why bother, are we going to go out and buy ourselves?’”
– Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management.
“This is the new day and it was when nobody listens to analysts: ‘Why bother, are we just going to go out and buy ourselves?’” Said Lars Skovgaard Andersen, investment strategist at Danske Bank Wealth Management. “It is a sign of high complacency,” added Andersen, saying that the lack of concern about evaluations reminded him of the race for the dot-com crash in 2000.
Still, Andersen says he does not believe that the actions of companies like GameStop foreshadow problems for the broader market, saying that the “herd mentality” is confined to relatively small actions.
To increase the frenzy, option contracts tied to GameStop’s shares are changing hands at a record pace, a sign that investors are trying to position themselves for more gains. When the stock jumped 51% on Friday, the activity of options linked to the company jumped to the highest level ever.
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Buying optimistic call options can generate gains for the underlying shares, because traders who sell contracts can seek protection against rising prices by buying the shares. GameStop stock options expire next Friday.
GameStop started the year as one of the best-selling companies on the New York Stock Exchange and Nasdaq, according to data from Dow Jones. On Friday, the stake sold in the company’s outstanding shares was 102%, according to data from IHS Markit tracked by S&P Global Market Intelligence.