GameStop’s stock soars as short sellers take a hit

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Short sellers of

GameStop

the stock has just been pressed. Shares of the video game retailer climbed nearly 94% on Wednesday, although the gain narrowed to around 57% when the market closed.

In an email to Barron’s, Ihor Dusaniwsky of S3 Partners highlighted the optimism after Monday’s announcement that Chewy co-founder Ryan Cohen and two other former Chewy executives are joining GameStop’s board of directors (ticker: GME). That, coupled with the results of holiday sales, seemed to trigger “a long buying tsunami,” according to Dusaniwsky.

Barron’s recently noted, citing short selling data from S3 Partners, that the stock appeared to be poised for a short squeeze, when demand for a stock briefly rises as investors rush to hedge bets on the downside. price. Investors have bet against the GameStop stock, given industry trends such as the growth of free online games. The growing tendency for consumers to buy games online, rather than buying copies in stores, has left the company’s physical disc business in dire straits.

With growing competition from e-commerce sites and large retailers like

Walmart

(WMT),

Best buy

(BBY) and

Target

(TGT), it will likely take a bold new strategy for GameStop to change things. For now, investors seem to be betting that Cohen and the company can find one.

Through the close on Wednesday, more than 143.5 million GameStop shares were traded – nearly double the previous record volume of 77.15 million shares on October 9, according to Dow Jones Market Data. The stock closed 57% higher at $ 31.40, which was its highest close since August 2016.

Short sellers lost $ 812 million in mark-to-market losses for the day, according to S3’s Dusaniwsky.

“While I agree that we are seeing some shorts being squeezed out of their positions due to massive mark-to-market losses today, it sounds a lot like the chicken and egg question,” Dusaniwsky wrote, adding that ‘he thought long purchases lead to short coverage, rather than the other way around.

Dusaniwsky does not expect stocks sold short to drop sharply in the next few days, noting that short sellers lost $ 968 million in 2020 over mark-to-market losses. short sellers actually increased their positions.

Ronnie Moas of Standpoint Research downgraded the title to Hold from Buy after the move. Moas noted that he recommended the name on December 29, 2016, when the stock was trading around $ 25.

“I can no longer leave my highest recommendation attached to this name given the recent absolute and relative movement,” he wrote on Wednesday.

The GameStop stock has had its fair share of one-day pops. An agreement with

Microsoft

sparked a 44% rally on October 8, but analysts noted that it seemed like a run-of-the-mill cloud-based infrastructure announcement. Even with some profit sharing on GameStop’s sales of Microsoft’s Xbox Game Pass Ultimate, that didn’t seem to move the needle.

“The profit share helps but may not be incremental to the lost sales / profits from the digital switchover. And, more digital always means less opportunity [games], the biggest driver of profit and loyalty [for GameStop]Credit Suisse analyst Seth Sigman wrote at the time.

Write to Connor Smith at [email protected]