Why Is GameStop Stock Soaring Again?

You might have thought that the GameStop (NYSE: GME) mania was over after last month’s surge, but trading of the hyped stock has taken off again. Yesterday, GameStop stock more than doubled just shy of a month after the “meme” stock’s short-squeeze captivated retail investors and social media. The video game retailer ended trading yesterday at $91.70, up 104% from the day before. It’s said that more than 77 million GameStop shares were traded during the day, including 30 million after-hours. 

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Other meme stock favorites including Express Inc. (NYSE: EXPR) and Koss Corp. (NASDAQ: KOSS) also benefited from the rally — jumping over 40% and 50% respectively. Retail investment discussion was so high that Reddit, the home of popular WallStreetBets forum, failed to load. Additionally, trading of GameStop stock was halted twice yesterday by the New York Stock Exchange. 

The GameStop rally is back on 

It feels a little like déjà vu as this surge has a lot of similarities to what happened in January. Retail investors piled into GameStop stock last month, causing shares to soar 1,600% and resulting in many brokerage firms halting trades after they were instructed to do so by their clearing houses. In addition, a Congressional hearing about the short-squeeze took place this month where Robinhood’s involvement in the matter was investigated. 

Now, recent news from the company’s new management structure has sparked further discussions on Reddit and the sudden revival of GameStop suggests that stuck-at-home day traders are far from finished with the stock. According to Bloomberg studies, retail traders now make up 23% of volume on the $33 trillion U.S. Equity market, a sharp increase from the 20% last year.

GameStop’s management news

The dramatic fluctuation follows news that the previously beleaguered company’s Chief Financial Officer, Jim Bell, will leave his position in March. A report has emerged that Bell was apparently pushed out by Ryan Cohen, CEO of online pet food retailer Chewy. Cohen’s venture capital firm has an almost 10% stake in GameStop and sources say he wants GameStop to start prioritizing digital sales of its products. 

Usually, such news from a struggling company would not warrant a stock reaching such heights. However, while GameStop did report 300% growth in sales over the holiday period and disclosed that some new specialist directors were joining its board, this is still a company that hasn’t justified its sky-high valuation. Behind the scenes, experts have warned that the rally has been used to threaten the status quo on Wall Street — not exactly the ideal long-term investment thesis investors should be looking for when buying a stock. 

The concern here is that vulnerable short-sellers won’t sell their positions and may get caught out when opportunistic traders take their profits. GameStop’s stock price might plunge again as it did at the end of January, when shares lost 72% of their gains between January 29th and February 2nd. Inexperienced investors lost millions last month betting on the stock and the fear here is that it will happen again.

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