If you've been downright puzzled by the astronomic gains seen by GameStop (NYSE:GME) stock in the last several days, you're not alone. This has puzzled analysts all up and down the pipeline, and with another huge gain in the premarket followed by a giveback in gains and even some delisting, it's another bizarre day in the trading fields. The story behind all these gains is proving to be intense in its own right, and it makes one thing clear: getting into GameStop stock right now without a clear exit plan is likely to be a bad idea.
The Story So Far
GameStop's meteoric rise over the last few days has proven to be an absolute gold mine for anyone who bought in on GameStop's low points back around May of 2020, when it looked like GameStop might well go under. The reports at the time, back when the stock was trading in the $4 to $6 range, suggested that the retail closures were threatening to bury GameStop, and that the company was hanging on for dear life until the release of the new line of consoles that was set to hit in November and give GameStop a sorely-needed boost.
Indeed, that hit did arrive, and by December, GameStop stock was trading at about four times what it was back in May. That's not any great shakes objectively, but percentage-wise, it was huge; going from $4 to $16 a share really only looks good as a percentage basis.
Then late January arrived. Back around mid-January, the company started another leg upward, which was still fairly sedate but no doubt welcome to investors. The price went from $19.95 per share on January 12 to $39.91 on January 14. Again, welcome, if unfathomable; it's not like the company had suddenly struck oil under a third of its stores. And that's when the doors flew off. By January 25, the share price nearly doubled again to $76.79. January 26 saw the price hit $147.98. As of this writing, the price stands at $369.75, and in a move that might be called “extreme,” the Robinhood trading app actually stepped in to prevent users from trading in GameStop stock at all.
Unconnected to Fundamentals
Meanwhile, the broader analyst community seems to be sticking to its guns, based on our latest research. The company is currently rated a “hold”, and the ratios comprising that “hold” are more bearish than they've been in six months. The company currently holds three “sell” ratings and four “hold” ratings, which compares terribly to figures from six months ago of three “sell” ratings and five “hold” ratings. It compares worse yet to three months ago, when there were two “sell”, four “hold” and one “buy” rating. It compares only slightly less worse to a month ago, with two “sell”, three “hold” and one “buy”.
The price target, meanwhile, is still down at $11.93, which represents incredible downside risk. Only two companies have adjusted their expectations so far, with Telsey Advisory Group coming out with a price target of $33 and a rating of “underperform”, while Standpoint Research recently lowered its outlook to “hold” from “buy.”
Stay Out From Underfoot When Bulls Rampage
Trying to track down the narrative on GameStop's sudden price explosion involves mainly a lot of supposition about the impact of short-selling on the markets and people's lives. Just part of the narrative seems to be springing from a single Reddit group known as r/wallstreetbets, who noted that GameStop was being heavily shorted, and decided to get a form of revenge by collaboratively driving the stock price up, thus forcing the short-sellers to cover their positions. Whether that's actually what's going on or not is unclear, though it makes for some exciting talking points.
The point that investors need to know right now is that something is amiss here, and anyone buying in on GameStop for the long term is likely to regret it. GameStop's business model of buying used games at phenomenally low prices and reselling them for prices that are decent when compared to new games is tough to sustain at best. It depends heavily on brick-and-mortar traffic to actually see these games are available, and its efforts to move such a business model online will run headlong into Amazon (NASDAQ:AMZN) who is already doing well selling used games. Ask any small retailer how well it works competing with Amazon.
When a stock trading app is willing to step in and prevent users from buying a certain stock, it's abundantly clear something is wrong. Robinhood is already taking a beating on that move, having received a growing pile of negative reviews on Google Play within the last 24 hours. Those who want to pursue some short-term gains in GameStop may find a fortune waiting, but without a clear exit plan, disaster may follow instead.
Companies in This Article:
