Why is GameStop still around?
The turmoil around the Gamestop share does not stop. In the past few days, the price of the US video game chain rose again to highs that are reminiscent of the extraordinary days at the end of January. Within three trading days, the share price climbed from 100 euros to 287 euros on Wednesday evening. But then it crashed again in a few minutes by more than 100 euros. On Thursday afternoon, the price was around 230 euros.
The strong fluctuations show that the situation around the so-called "meme shares" has not calmed down for a long time. In January, the prices of Gamestop, the US cinema chain AMC Entertainment, the communications service provider Blackberry and the mobile communications company Nokia suddenly rose sharply. The main reason for this was that many, mostly young, small investors on the Internet platform Reddit had agreed to buy such stocks to drive their prices. Above all, they wanted to wipe out hedge funds that had bet heavily with so-called short sales that these stocks would fall.
Investors bring major investors to their knees
The price increase was most blatant at Gamestop. Triggered by purchases by the Reddit people, there was a short squeeze: The short sellers had to stock up on previously sold shares in order to avoid ever higher losses; that fueled a downright absurd price increase. At its peak on January 28th, the Gamestop share stood at 420 euros - 30 times as high as at the beginning of January. Hedge funds lost a lot of money as a result, most recently it was said that the losses totaled $ 11 billion. The events caused a sensation worldwide, also because for the first time a large number of small investors had succeeded in bringing large investors to their knees.
In February, however, the share price fell again to 33 euros. For two weeks it looked as if the short squeeze was over and the price would settle at the original level. But then it began to rise again at the end of February.
Lots of discussions on Reddit
The sharp price jumps prove that there are still enough buyers in the market. There is still lively communication from small investors on the Reddit forums, encouraging them to invest in Gamestop. You are the driving force behind the recent price increase, says Michael Pachter, managing director of equity research at asset manager Wedbush.
In addition, there are still a relatively large number of short positions. The US website Marketbeat currently has a volume of 3.8 billion dollars. At its peak in January it was $ 12 billion. This means that there are still short sellers at work who have to stock up on stocks and thus intensify the price increase.
The household checks of $ 1,400 that US President Joe Biden is sending every American as part of his economic stimulus package could give an additional boost. "We expect households to be the largest source of stock demand this year," wrote analysts at investment bank Goldman Sachs. Experts believe that many US citizens, especially young adults with little money, will see the check from the state in the US Get stuck buying "meme stocks".
Finally, some good news from Gamestop itself: Major shareholder Ryan Cohen recently became more involved in management. The founder of Chewy.com, an online pet supplies retailer, is set to advance Gamestop's online business. The company operates hundreds of branches worldwide. That was the reason why hedge funds bet on a price decline: users download video games from the Internet today, Gamestop is considered the "old economy".
If Cohen rebuilds the company quickly, it could have a future again. Wedbush expert Pachter warns against being overly optimistic about the company's situation. In order to justify the current price of more than 200 euros, stable profits of ten to twelve dollars per share are necessary. He believes the company will only generate a surplus of one dollar per share in 2022. For 2020, analysts expect a loss of two dollars.
But there is also the opposite opinion: Analyst David Keller from Stockcharts.com sees the price level justified. "The stock feels like a growth stock," he said. The price development of AMC, Nokia and Blackberry also shows that the story of Meme shares is not yet over. Their shares have also risen significantly in the past few days, if not as extreme as Gamestop.
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