The meteoric rise in GameStop’s stock, as traders congregating on Reddit and Discord take on short sellers and hedge funds, is hard to look away from. It’s the closest thing Wall Street has to David vs. Goliath.
GameStop is expected to lose money this year and next year. Sales growth is sluggish as fewer gamers need to go to stores – or even shop online – when they can download new titles directly from their consoles, PCs, phones or tablets. So why are shares of the video game retailer up more than 275% so far in 2021? The company can thank a loyal group of investors on Reddit who continue to back the stock even as many others on Wall Street have argued that the shares are overvalued and due for a sharp decline. The stock was extremely volatile on Monday, and it was halted several times. Shares more than doubled at one point, and finished the day 18% higher. The stock ended Tuesday up more than 92%, or about $148 a share. After the market closed, Tesla CEO Elon Musk appeared to join the pile-on with a tweet that sent GameStop shares briefly above $200. His one-word comment – « Gamestonk!! » – was all it took to cheer on the popular Reddit page that’s been generating most of the hype around the stock. Posters on the WallStreetBets subreddit have been touting the company aggressively. That appears to have helped fuel a so-called short squeeze in GameStop stock. A large number of investors have bet against GameStop recently by borrowing shares and selling them with the hopes that they can then repurchase the stock at a lower price and pocket the difference. That’s a risky strategy: If a stock suddenly spikes higher, short sellers may have to rush en masse to buy back shares or risk losing their shirts.
