They are piling into stocks with high short interest – in other words, companies where many shares are being used to bet against the stock – with the intention of setting off a short squeeze. Hardware and accessory sales accounted for 49% of GameStop’s top line last quarter. Meanwhile, GameStop’s adjusted net loss shot up to $158 million, or $2.08 per share, in fiscal Q1 from $29.4 million, or $0.45 per share, in the prior-year period. Of course, the company is trying to diversify its business by moving into new verticals such as a digital wallet that will allow gamers to receive and send non-fungible tokens (NFTs) and cryptocurrencies.
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The company largely relies on brick-and-mortar stores and has been grappling with customers turning to e-commerce firms for buying video games and collectibles. Meme stocks tend to prompt consternation and confusion among normie market participants, but then that’s just part of the fun. When they buy stocks “on margin,” they’re using borrowed money, which can supercharge their gains and losses. With options, an investor can buy the right to buy the stock at a later date at a certain price. If the stock hits that target, investors can reap a bigger return than if they simply bought a share.
What has Reddit got to do with it?
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story. GameStop is likely moving higher as meme-stock and retail investors look for a big squeeze in what has been a depressed market. GameStop did not disclose the price at which it sold the shares, but based on Reuters calculations, they were sold at an average price of $20.74 each.
- The company is also struggling with tight competition from online retailers.
- To their credit, social media investors have identified striking parallels between Troika Media and GameStop.
- When a stock is very heavily shorted, a rise in its price can force short sellers to get out of their bets.
- Enthusiasm has grown for GameStop’s prospects after the company said earlier this month that a co-founder of Chewy, the online seller of pet supplies, was joining its board.
- They were the place where millions of young people could trade in used games, debate the merits of different franchises and get advice from GameStop’s staff, often avid gamers themselves.
- Later, if the stock price does as they expect, they can buy the stock at a lower price and keep the difference.
The next GameStop? 38 heavily shorted stocks that retail investors could target next, according to Goldman Sachs
If you’re sure the company will lose value, you’d make a profit when you buy them back and the price has fallen. With the stock price high, many people will feel like that gamble has paid off. And that, in turn, is having a real-world effect on the share price right now. And that pretty meagre announcement generated a load of buzz on WallStreetBets – which in turn, foot pumped the share price. But on Wednesday, the share price was approaching its January high. In February, the prevailing attitude on Wall Street was the share price was slowly finding its natural position.
Reddit chief: I was late to spot GameStop mania
This is probably one of the reasons that the stock has rebounded higher. Note that these share counts (usually around the end of February or early March of the following year) and the share price (usually from June 30 of the reporting year) are from the company’s 10-K filings. But huge numbers of people in the wallstreetbets Reddit forum swapped tips and bought shares in GameStop. GameStop was one of the companies that loads of hedge funds (companies who do these bets) had bet on to lose a lot of value. They borrow shares in the company and sell them, with a promise to buy them back at a later date.
Troika Media: Reddit’s Next GameStop?
What’s going on with GameStop’s stock doesn’t make sense to a lot of people. On the date of publication, Tom Yeung did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
When a stock is very heavily shorted, a rise in its price can force short sellers to get out of their bets. To do that, they have to buy the stock, which pushes the stock even higher and ig broker review can create a feedback loop. As GameStop’s short sellers have gotten squeezed this month, smaller and first-time investors have been egging each other on to to keep the momentum going.
GameStop’s exorbitant valuation is the result of the Reddit meme investors’ fixation on what has become a battleground stock between retail investors and hedge funds. The WallStreetBets investors don’t care about the company’s fundamentals but are focused on creating a short-squeeze to deliver their returns. Ultimately, it’s an investment fraught with danger for regular investors seeking long-term growth.
Major companies with solid growth prospects haven’t seen a bump in their prices following stock-split announcements. That’s why an investment in GameStop shouldn’t be based on https://www.broker-review.org/ a stock-split move. Instead, investors should closely scrutinize what the company’s future may look like. The one that’s important in this story is called wallstreetbets.
With fewer people out shopping due to the pandemic and most games being sold online, things weren’t looking great for the company. Last month, a Deutsche Bank survey of 430 retail investors found they planned to put 37%, on average, of any stimulus cheques directly into equities. Earlier that day the share price had soared to nearly $350 (£250) times more than this time last year. Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective. Moreover, GameStop expects a Q1 sales estimate of $872 million from $892 million, which contrasts sharply with 2023’s $1.24 billion.
And GameStop’s GME valuation at Wednesday’s close of $178.58 gives the company a market cap of $12.1 billion. Its market cap to revenue ratio (also using 2019 revenue) is 1.5x vs. the 0.15x as of December 31, 2020, less than four months ago. It is even worse if you use the analyst’s $5.2 billion revenue estimate for 2022 as the company’s ratio is 2.3x. From MicroVision’s first 10-K filing for 1998 the company was worth $97 million based on 6.2 million shares.
From a trading perspective, Troika Media had around 21 million shares sold short at the end of February, a 72% short interest ratio. That’s roughly the same as GameStop’s elevated 88% figure in January 2021. Both firms would go on to experience short squeezes in their stock, an essential ingredient to getting retail investors excited. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
The frenzy for the troubled retailer’s stock has been a head-scratcher for the analysts who try to determine a company’s value. A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities. GameStop rose by nearly three-quarters in a single session after one of the biggest boosters of the first meme-stock frenzy returned to the internet trenches following a multi-year absence. Apparently, a cryptic post on X by Keith Gill, aka «Roaring Kitty,» was all it took to once again set off squeezes in some heavily shorted names. This makes GameStop the latest company to join the stock-split bandwagon.
GameStop, based in Grapevine, Texas, sells video games at more than 5,000 stores, and the pandemic has been keeping customers away. More worrisome is the long-term shift by customers away from brick-and-mortar stores and toward buying games online. At the same time, champions of the 99% are cheering louder from the sidelines, saying the moves mean that hedge funds, Wall Street and the 1% are finally getting their comeuppance. Using $50 million for 2022’s revenue, which could still be aggressive, makes the market cap to revenue ratio 62x. While this isn’t in the stratosphere, a lot has to go right just to support today’s stock price. Using 2019’s revenue to remove any Covid-19 impact and the current market cap of $3.1 billion, the company’s market cap to revenue ratio is 1,077x.