Why GameStop Stock Just Released 21%

What happened

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

The video didn’t arrive as promised, however, and GameStop didn’t return at all. Instead, it rose 10% and 21% today, as of noon EST.

So what

Why is this happening? Some believe that GameStop’s short sellers are suffering from short squeeze – and that’s probably true. It’s also true, however, that Citron didn’t release its livestream when promised, blaming “the people who hack Twitter Citron” for yesterday’s delay.

Too many people hacking Twitter Citron, will save and post later today. $ GME go to $ 20 buy at your own risk

– Lemon Research (@CitronResearch) January 21, 2021

The video eventually came out, but it wasn’t live. In it, Citron director Andrew Left laid out his five reasons for selling GameStop, which basically work like this:

1. While there is a strong short-term interest in GameStop stocks, “there is no short-term squeeze” because there are still plenty of GameStop stocks available to borrow and short.
2. Hardware sales were up 23% year-over-year in December, but GameStop’s sales were down 9%, causing it to lose market share to Best buy, Walmart, and Amazon.
3. GameStop is selling 40 times next year’s EBITDA, which is really expensive.
4. A Twitter mob drives up stock prices, resulting in high valuation.
5. GameStop is over $ 1 billion in debt and will likely sell stocks to reduce its debt, diluting anyone who bought GameStop.

Now what

I agree with most of these arguments – other than the one that there is no short squeeze. Anyone who has sold this stock short and is betting that it will go down is probably at least a little nervous to see it become more expensive.

As a reminder: when you sell a stock short, and it goes to $ 0, you make a 100% profit. When you sell a stock short but it goes up, your losses are potentially endless. Ultimately, Citron thinks GameStop is a “mall-based broken down retailer” – but it’s GameStop’s short sellers who are failing today.