Game stopped for GameStop?
About GameStop
GameStop Corp. is an American video game, gaming merchandise retailer. It sells games and entertainment products through over 5,000 stores and e-Commerce platforms.
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Historical performance Revenues (USD billion)
Operating profit (USD billion)
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Post Covid, the Quarterly performance declined even further Revenues (USD billion)
Operating profit (USD billion)
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Share price performance
High of $483 on 28th Jan 21
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Shareholder return is driven by operating performance
Why a fundamentally weak company – GameStop became the stock market favorite this year? • Is there any change in the business model for GameStop which led to the drastic improvement in investor expectations? • Is it another turnaround story?
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Ryan Cohen bought 13% stake in GameStop in Sep 2020 GameStop Share price
Hedge funds started shorting its shares…. Email: Support@skillfinlearning.com
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How can you earn money by shorting shares
Current Share Price $10 per
Borrow share from your broker and sell
Profit = $ 5 per share
Share Price Drops to $ 5
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• If share price drops from current levels…you earn a profit • If share price increases current levels…you incur a loss
Buy the shares from market and return to your broker
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When Game Stop share prices started increasing hedge funds started shorting it GameStop Share price
• The number of GameStop shares shorted (around 72 million) by hedge funds were around 1.4 times of the free float of the Company (50.6 million).
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This Story of short selling came out on a Reddit Forum
WallStreetbets has 2 million subscribers
This post caught the attention of many retail investors on the forum. They came together and started buying the shares of GameStop knowing that the prices would increase. Email: Support@skillfinlearning.com
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GameStop’s share price started rising GameStop Share price High of $483 on 28th Jan 21
• Hedge funds were caught in a “short squeeze” created by the retail investors and were forced to cover their positions forcing the stock prices to newer highs.
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Huge Losses made by Hedge funds
Total Loss
$24 billion
Total Loss $24 billion and may file for bankruptcy Email: Support@skillfinlearning.com
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GameStop’s share price started rising • After this incident, a few brokers allowed only selling/ limited trading of this stock on their platform. • As the number of buyers reduced the stock price for GameStock started falling. It fell by 90% in the next one week.
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GameStop Share price
90%
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Lessons learnt • Share prices are driven by operating performance of the business. • Invest if you understand the business. Buying a share because others are buying it is not the right strategy. • When you buy a share, you can lose up to 100% of your investment. But when you short sell anything, the loss can be unlimited. So, never short sell anything.
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