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Laura Martin, senior analyst at Needham & Company, explains why video game sales have exploded during the pandemic, including the lack of live sports, and sees that the video game industry will continue to grow revenue.
On Reddit and discussion forums, day traders were shouting it from the rooftops: Buy GameStop!
Plenty of people did, sending the mall’s once-dying retailer shares 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 to rebound again to $ 73.50, up 13%.
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The move, which brought GameStop’s earnings for the year to around 300%, is the latest sign that frantic trading by individual investors is leading to outsized swings in the stock markets.
| Teleprinter | security | Latest | Change | Change% |
|---|---|---|---|---|
| GME | GAMESTOP CORP | 76.79 | +11.78 | + 18.12% |
Volatility prompted the New York Stock Exchange to briefly halt operations nine times. This follows an eventful pre-market session in which the GameStop share price skyrocketed and more than 10 million shares traded hands, well above average.
The rally was fueled by investors cheering each other on on social media to stack GameStop stocks and options.
The buying pressure has led fund managers to drop substantial bets that the stock will fall, investors and analysts have said.
This resulted in a brief squeeze, in which rising prices prompt investors to buy back stocks they had sold short to cut their losses, pushing the stock even higher.
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GameStop did not respond to a request for comment on Monday’s move.
The company has become a high-profile battleground between bullish, chat-oriented day traders, particularly on the online platform Reddit, and hedge fund short sellers, who have bet against the action.
GameStop has been the most actively traded stock by Fidelity Investments clients over the past few sessions, with buy orders exceeding the number of sell orders by more than four to one, according to the brokerage.
“We broke it. We broke GME on the open, ”a Reddit user wrote on Monday after the NYSE halted trading, referring to the GameStop stock ticker.
Some Reddit users cheered others on when GameStop’s actions then went the other way, using an emoji to describe the stock as a rocket on the moon. “Stay online! No room for skeptics,” one wrote. Another lamented loss: “I’m still new to this business and bought to double my holdings to $ 137. Tell me I’m fine .
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The scuffle around the company, with a modest market value of around $ 5 billion at Friday’s close and four years of declining sales, illustrates the increased influence of retail investors. Many poured into the market during the coronavirus lockdown, flocking to online platforms to exchange trading ideas and brag about winning bets.
The GameStop rally is part of a series of eye-catching market moves that are causing concern among fund managers, some of whom say trading by individual investors is pushing stock prices out of control along with fundamentals.
In another case, a tweet from Tesla Inc. CEO Elon Musk about the messaging app Signal sparked a rise in the share price of unrelated biotech company Signal Advance Inc.
“This is the new day and the age where no one listens to analysts: ‘Why bother, let’s just go buy it ourselves?'”
– Lars Skovgaard Andersen, Investment Strategist at Danske Bank Wealth Management.
“This is the new day and the era where no one listens to analysts, ‘Why bother, let’s just buy it ourselves? Said Lars Skovgaard Andersen, Investment Strategist at Danske Bank Wealth Management. “It’s a sign of great complacency,” Andersen added, saying the lack of concern over valuations reminded him of the time leading up to the dot-com crash in 2000.
Still, Mr Andersen says he doesn’t think moves by companies like GameStop bode well for the larger market, saying the “herd mentality” is confined to relatively small stocks.
To add to the frenzy, options contracts linked to GameStop stocks have changed hands at an all-time high, a sign that investors are trying to position themselves for further gains. When the stock jumped 51% on Friday, company-related options activity hit its highest level.
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Buying bullish call options can generate gains for the underlying stocks, as the brokers who sell the contracts may seek to hedge against rising prices by buying the stocks. The options for GameStop actions will expire next Friday.
GameStop started the year as one of the shortest companies listed on the New York Stock Exchange and Nasdaq, according to Dow Jones data. On Friday, short interest in the company’s outstanding shares stood at 102%, according to IHS Markit data tracked by S&P Global Market Intelligence.
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