MC Journal

GameStop Shares Rocketed Over 100% During Power Hour In A Trading Frenzy. What Should You Do? 

With the only recent announcement being chief financial officer Jim Bell resigning from the C-suite executive team, there was really no other material news about GameStop that allowed it to rocket well over $150 a share. As a result, the SEC's limit up-limit down rule had an effect on all brokerages and ultimately led to the halted trading of shares. 

This continues to be a major David and Goliath story as a disheartened generation of investors are believing that this is no longer a system that favors their best interests. Unfortunately, GameStop is perhaps not the best suited vehicle to spur change and really topple down anything more than an underperforming business. 

As one of the greatest short squeezes in history was taking hold, the massive rise was much due in part to the percentage of GameStop shares sold short of the float. When GameStop saw its peak of $483, this percentage was well over 220%, marking an unimaginable short interest that exceeded even the shares outstanding. Today, the percentage of shares sold short of the float is sitting at 60.35%, a significantly smaller number than previously, however still what many would consider a high number. The urge for some investors to "HODL" to prices above $500 are extremely hopeful, and other investors are likely feeling a similar spike of "FOMO" after today. 

Financially, GameStop has seen a -9% revenue decline in the past 3 years, along with negative operating and net margins in the past twelve months. They have struggled to keep net profits positive in the last 2 years and the next fiscal year is not looking anymore sanguine. As more and more individuals continue to buy digital computer and console video games, GameStop's business of console hardware, gaming software, and accessories is becoming increasingly obsolete. Jim Bell's plea for a pivot into a budding ecommerce platform capable of competing amongst the best companies was met with resistance and pressure to relinquish his position. This is a story that mirrors a reminiscent Blockbuster, one that failed to acknowledge the industry changes that would inevitably evaporate it from the market. 

Although short interest remains high, it is unlikely that prices will be forced up from hedge funds covering their short positions on the same scale as before. There would need to be a buying demand of a magnitude that exceeded any volumes posted on the exchanges since late January 2021. 

A company that is not prepared for the future is one that is preparing to fail. There will be many cautionary tales written about the GameStop stock saga, and it is best not to write your own.