Why GameStop’s stock just burst 21%

Why GameStop’s stock just burst 21%

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What happened

Yesterday should be a bad day for the mall-based video game retailer GameStop (NYSE: GME). In a Twitter post, short-seller Citron Research threatened to post a live video featuring “5 reasons for GameStop [buyers] are the suckers in this poker game “and why GameStop’s stock would return” to $ 20 quickly “.

The video did not arrive as promised, however, and GameStop did not return at all. Instead, it rose 10% and is rising another 21% today, starting at noon EST.

Bright green stock line rising on a stock chart.

Image source: Getty Images.

And

Why is this happening? Some believe that GameStop’s short sellers are suffering a little squeeze – and this is probably true. It is also true, however, that Citron failed to publish its live broadcast when promised, blaming “people who hacked Citron’s Twitter” for yesterday’s delay.

The video ended up coming out, but it was not live. In it, Citron boss Andrew Left outlined his five reasons for selling GameStop, which basically works like this:

  1. Although there is a high short interest in GameStop’s shares, “there is no price reduction happening” because there are still many GameStop shares available for loan and short sale.
  2. Hardware sales grew 23% year-over-year in December, but GameStop’s sales fell 9%, so it’s losing market share to Best buy, Walmartand Amazon.
  3. GameStop is sold for 40 times EBITDA next year, which is very expensive.
  4. A crowd on Twitter is raising the stock price, resulting in this high appreciation.
  5. GameStop has more than $ 1 billion in debt and is likely to sell shares to reduce its debt, diluting anyone who bought on GameStop.

What now

I agree with most of these arguments – except the one about not having a short tightening. Anyone who sold this stock short and bets that it will fall is probably at least a little nervous to see it get more expensive.

As a reminder: when you short sell a stock and it reaches $ 0, you make a 100% profit. When you short sell a stock, but it goes up, your losses are potentially infinite. Ultimately, Citron believes GameStop is a “troubled shopping center-based retailer” – but it’s GameStop short sellers who are failing today.

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