NEW YORK (AP) – Wall Street has a head-scratching story of David and Goliath about the stock price of a money-losing video game dealer.
An army of optimistic investors with smaller pockets tossing dollars and buying orders on GameStop’s stock – in direct contrast to a group of wealthy investors who are counting on the stock price to plummet.
The resulting action is wild: GameStop stock rose nearly 145% in less than two hours on Monday morning, only to make profits disappear quickly afterwards.
The Grapevine, Texas-based company lost $ 1.6 billion over the past 12 quarters, and its stocks fell for six years before rebounding in 2020. So it seems like a strange place for the place of so much movement. However, GameStop has been a target for many professional investors who say the company will continue to become founders as game sales continue to go online.
These investors have bet that GameStop stock will fall. They “shorted” the stock, which means they borrowed and sold stocks in the hopes of buying them back at a cheaper price and pocketing the difference. But bets like this have been disastrous lately.
GameStop was trading at less than $ 18 a few weeks ago. The stock rose after the company appointed three new directors to its board on Jan. 11 to accelerate the turnaround, including a co-founder of online pet supplies retailer Chewy. The idea was that this should support GameStop’s digital transformation.
Meanwhile, a cavalry of smaller investors on the Internet have admonished each other to keep the stock’s momentum moving towards the moon. Many pose as the fight of the regular people against hedge funds and big Wall Street firms.
It took only five days for GameStop stock to double after the board restructuring was announced. Last Friday it was up 51%, a bigger gain than big stocks like Apple or Exxon Mobil ever in a day. For GameStop, the 51% move was just the second best day of the month – and the month isn’t over yet.
The meteoric surge caused some short sellers to get out of their bets by buying stocks, and this helped add to the momentum. On Monday, the push and pull was so extreme that trading in GameStop shares was temporarily stopped at least nine times due to volatility.
It closed at $ 76.79 on Monday after fluctuating between $ 65.01 and $ 159.18 earlier in the day.
“This is a real experience for my first month on the stock market. Hold on to infinity, ”one user wrote on a Reddit discussion about GameStop stock. A moment later, another user said, “We’re literally more powerful than the big companies right now.”
The same feeling went well beyond Internet message boards to Wall Street.
“As someone who started trading stocks in college in the late 1990s, I always remembered the small retail groups being crushed by hedge funds and savvy short sellers,” said Edward Moya, senior market analyst at OANDA, in a report. “What happened to GameStop stock is a reminder of how times change.”
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