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n January 25, 2021, GameStop surprised everyone when its shares had a 145 percent increase. It is a very strange thing for this to happen, especially during a worldwide pandemic. At around this time last year, GameStop closed almost 450 stores across the country. Shares could be bought for $3.25. The real question is why did share prices sharply increase? According to The Guardian, “The strange saga of GameStop’s cult status can be traced back to last September, when Ryan Cohen – investor and founder of the online pet food giant Chewy – took a 13 percent stake in the retailer and started lobbying for it to move more of its business online and become a serious rival to Amazon. Cohen and two associates were added to the company’s board in January.” Senior Isabella Kulstead said, “GameStop shares rose dramatically due to independent shareholders on a Reddit thread (called WallStreetBets) who noticed unfair activity from multi-billion dollar hedge funds on the GameStop stock, also known as shorting the stock. These hedge funds kept essentially betting on the stocks to fail, and would count on the stock dropping in popularity to make money. So, investors on WallStreetBets organized a grassroots movement to put money into GameStop stock, thus increasing the stock’s value.” Surprisingly enough, other companies, such as BlackBerry, AMC Entertainment, and Bed Bath & Beyond, are also surging. The common thread between these companies is that they are heavily shorted by Wall Street firms. Their shares are prone to spike because investors who have shorted the stocks are forced to buy it back. Shorting means to borrow a company’s shares and sell them with the intention of buying them back cheaper when the share prices fall. Approximately, 71.66 million GameStop shares are shorted, which is worth about 4.66 billion dollars. AMC’s stock spiked after they announced they would avoid bankruptcy with new financing. After that, their shares rose 300%. Lisa-Marie Bastina, senior, said, “I think it’s crazy that the reddit community was able to manipulate the stock market the same way big corporations do.” According to NBC News, “The new activity even caught Federal attention, with the U.S. Securities and Exchange Commission saying in a statement that they are “aware and monitoring the on-going market volatility.” On January 28, many trading platforms placed temporary restrictions on GameStop stock. The New York Stock Exchange even halted trade nine times. TD Ameritrade limited trade with GameStop and AMC Entertainment. Robinhood faces lawsuits after halting GameStop trading. These lawsuits were filed by people who claimed that they suffered financial losses at the hands of Robinhood when they halted trading. This situation will not have a huge impact on the population’s finances, according to Keith Beverly, managing partner and chief investment officer at investment advisory firm Grid 202 Partners. However, retirement accounts may be affected by companies’ shorting. Additionally, he says, “A drop in price for one of those stocks could affect your accounts, but only to the extent of the amount of holdings you have in a particular company, like GameStop.”
Jordan Basenback, social studies teacher, said, “I don’t think that it will continue specifically for GameStop for long. Other companies that have bleak features in industries that may soon be obsolete, and that hedge funds have made bets against, are going to probably be targeted for the same sort of mass buying of their stock. This will inevitably be followed by a mass selling off of the stock. The thing most likely to stop this is legislation that could be passed since these sorts of massive market fluctuations are not always good for the stock market and sectors of the economy. The Reddit group has exposed loop holes within trading and have highlighted practices that have been ongoing for years which most likely need to be fixed.” Experts say that it is only a matter of time before these stocks fall again. EPS estimation, analyst consensus, and fundamental intrinsic valuation work to determine the future value of GameStop’s stock. According to Macroaxis, by the end of the year, Gamestop’s stock price will drop to around $88, which is not the huge drop that other experts predicted.
feature u february | march 2021u the viewpoint u 09
