GameStop stock is soaring, and the reason why may be surprising.
More than a year after making headlines as part of the meme stock phenomenon, investors are back on board for another round of surging GameStop share prices. Meme stock refers to a specific stock that gains popularity among retail investors through social media. It’s generally based on internet memes shared by traders on platforms like Reddit’s r/wallstreetbets. Although the video game store’s recent highs are nowhere close to 2021’s spike, experts say the value exceeds the company’s actual worth.
Speaking to NPR about these developments, Assistant Professor of Finance in the College of Business at the University of Central Florida, Kevin Mullally said, “It’s hard to argue that the price is worth more than $80.” Earlier this week, GameStop shares opened at $175. This follows the company’s ever-shifting value since March 1st when it constantly moved between $78 and $189. Due to these inconsistencies, a lot of folks have wondered why the Texas-based retailer’s stock continues to perform beyond expectations.
While it’s not uncommon for a company’s share prices to fluctuate, as a 1980’s brick-and-mortar store specializing in video games and electronics, GameStop was essentially a dying business. Interestingly, the company’s $20 share price was overhauled last year when people started shorting the stock. Shorting essentially means that investors are betting against the company and will profit if the value of the asset falls.
In 2021, amateur traders rallied together to push GameStop’s stock price higher. The traders mostly organized through online communities sought to fuel a short squeeze on the video game retailer and trigger major losses for hedge funds. Two funds caught in the squeeze were Melvin Capital and Citron. They were forced to buy more GameStop stock to cover losses, driving the retailer’s stock price even higher. At the time, founder of Reddit forum WallStreetBets Jaime Rogozinski told NPR that the trend was a democratization of financial markets that gives a voice to people that didn’t previously have one.
Most experts didn’t expect the fanfare over the gaming and technology store to last long because people were eventually going to lose money. However, they have been proven wrong thanks to the support of online communities. “Anytime GameStop dips under $100, people come back in and prop it up,” Kevin Mullally told the publication. Now, the recent surge in GameStop prices can be attributed to chairman, Ryan Cohen buying shares in the company.
According to CNBC, he purchased 100,000 shares of the video game retailer last week, bringing his ownership to 11.9%. The move took place via his investment company, RC Ventures. In a statement to NPR, co-founder, and chief technology officer of Quiver Quantitative Inc, Christopher Kardatzke said this is seen as an indicator of the insider sentiment of their own company. It’s a valuable metric and probably gave folks renewed confidence in investing in GameStop.
But traders who have closely monitored GameStop since 2021 are aware of the stock’s volatility. “When you see price movement in stock like GameStop it generates a lot of discussions and gets a lot of people interested in what it’s going to do next,” Kardatzke added. And while some folks still don’t understand the current value of an old business, the more interest GameStop stock generates, the more demand some traders will have for it.