GameStop stock: why struggling retailer’s stock is exploding

• The biggest video game retailer has had a few roaring years.
• His share was worth less than $ 5 per share in mid-August, but its stock price has skyrocketed in recent weeks.
• Turns out the explosion has little to do with video games, GameStop, or the video game market.
• Visit the Business Insider homepage for more stories.

In early 2019, GameStop’s share value fell off a cliff: it dropped from around $ 16 per share to less than $ 4.

And it stayed in that range for just under two years.

Even in 2020, when the video game industry (including GameStop) had huge gains during coronavirus lockdowns, the GameStop share price remained in the gutter. As recently as August – just under five months ago – the largest video game retail chain had a stock value of less than $ 5 a share.

But in the second half of 2020, with big names in finance like Michael Burry and Ryan Cohen buying back shares of the struggling retailer, things started to improve. The value of the company’s stock gradually increased until it totally exceeded its pre-collapse value at the end of 2020.

And that’s where it got really bizarre: Between Jan.20 and Jan.26, GameStop’s share value rose from just over $ 35 per share to north of $ 140 per share. On January 27, it hit new highs of over $ 325 per share, an increase of over 8,000% from just a few months ago.

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But why?

The answer has little to do with GameStop, nothing to do with video games, and much to do with a Reddit forum dedicated to the stock market game.

The forum, named Wall Street Bets, has over 2 million members, and it’s the collective action of those members that seems to drive GameStop’s share value up. Simply put: As more and more people buy the stock, its price goes up. And there is no sign that this collective action is stopping anytime soon.

“GME has bounced back and is back at $ 225,” a Reddit forum thread said Wednesday morning. “Hold the boys strong… we’ll take GME to $ 1,000.”

Another discussion thread urged users not to sell and remove their $ 1,000 price limit, which would automatically trigger sales.

“GME will remain active until WE sell. Don’t sell boys, $ 1,000 was the original goal, but nothing prevents that from going up to $ 5,000 other than us,” he says. “It sounds like a meme but it isn’t. Hold on and make Father Musk proud!”

More than anything else, the dominant theme in Wall Street Bets is collective power – collective power enough to fend off hedge funds and analysts who predicted GameStop stock would never reach such heights.

“FOR ALL LARGE F — ING HEDGE FUND WATCHING US, THIS IS A MESSAGE FROM US TO YOU, WE OWN YOU NOW, F —. YOU. GO BUY NEWS F — ING. LIKE AND COMMENT TO SEE THIS POST. F — YOU MELVIN CAPITAL. F — YOU LOOKING FOR LEMON. YOU DIDN’T CLOSE S —. THIS IS GONNA HAS HAPPENED IN HISTORY, “said one of those messages.

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But that doesn’t mean the value will hold up for the long haul or that GameStop is worth its stock value to its shareholders.

The explosion in the value of GameStop’s shares is “just a cult phenomenon,” Michael Pachter, managing director of Wedbush Securities, told Insider. “They currently do not have the power to bear such a high price,” he added.

That’s because, like Blockbuster and Tower Records before it, GameStop faces major challenges for its internet business model. As more and more people buy video games through digital storefronts, fewer and fewer are buying games on physical discs. And GameStop sells physical disks.

Despite a revamp of the company’s C-suite and the addition of Cohen to the company’s board of directors, GameStop hasn’t revealed a long-term plan to avoid oblivion.

“The market appears to believe Ryan Cohen has a strategy that will dramatically increase his profits,” Pachter said. “I can’t honor him for his genius until I see what the strategy is.”

Do you have any advice? Contact Senior Business Insider Correspondent Ben Gilbert by email ([email protected]) or Twitter DM (@realbengilbert). We may keep the sources anonymous. Use a non-functional device to reach out. PR arguments only by email, please.