GameStop inventory goes detrimental on the wild day of buying and selling when shares doubled

Copies of Grand Theft Auto V are available for sale in a GameStop store in Peru, Illinois.

Daniel Acker | Bloomberg | Getty Images

GameStop wiped out a 140% rally and briefly turned red in wild trade on Monday. Retail investors active in chat rooms and hedge funds to cover their short bets have pushed the stock above $ 150 per share at one point.

The stationary video game retailer stocks fell into negative territory after rising 144.9% to $ 159.18 on their morning trading session high. The stock was stopped several times due to volatility. By midday trading, over 111 million shares had already changed hands, far exceeding the average 30-day trading volume of 29.8 million shares.

The stock was last trading 26% at around $ 81 per share.

GameStop stocks are up more than 250% in January alone, and up over 360% in three months. The stock was worth just $ 6 each four months ago.

The stock jump early Monday came despite a double downgrade by the Telsey Advisory Group. The Wall Street company downgraded its GameStop rating to underperform the outperformance. There is a separation between fundamentals and valuation.

“The sudden, sharp surge in GameStop’s share price and valuation was likely fueled by brief pressures from high short interest and, to a lesser extent, retail speculation about new cycle predictions and activist involvement,” RC Ventures said Telsey analyst Joseph Feldman on Monday in the note.

“We believe the current share price and valuation level are unsustainable and we expect the fundamentals to allow stocks to revert to more normal / fairer valuation,” the company added.

GameStop was a popular short stop on Wall Street. In fact, more than 138% of the float stocks had been borrowed and sold short, the most abbreviated name on the US stock market, according to FactSet, citing recent records.

On January 11, it was announced that activist investor and Chewy co-founder and former CEO Ryan Cohen will join GameStop’s board of directors. The stock jumped on the announcement in hopes that Cohen would drive a change in strategy. The profit sparked a rush of short covering among hedge funds and traders betting against the stock. If a short stock trades significantly higher, short sellers would have to buy back stocks to reduce their losses, fueling the rally.

GameStop has also been a hot topic in online chat rooms, Twitter, and Reddit as some retail investors and day traders aim to drive stocks higher and root out short sellers. GameStop was the most actively traded stock on the Fidelity platform on Monday, according to company data.

A post on the popular “wallstreetbets” Reddit on Monday morning said, “I don’t sell this until at least $ 1000 + GME.” The post quickly drew more than 5,000 comments.

“It’s just another reflection of the buoyant mood,” said Peter Boockvar, Bleakley Advisory Group’s chief investment officer, from GameStop on Monday. “Here, too, it will be important whenever and whenever.”

Citron Research, a vocal GameStop short seller, said Friday it would stop commenting on the company due to attacks by the “angry mob” who own the stock. Citron said too many people hacked Citron’s Twitter account on Friday and a live stream was canceled detailing five reasons the stock will climb back to $ 20.

Telsey’s 12 month price target is $ 33. According to FactSet, the average price target from analysts is just $ 12.39, well below what it was trading at on Monday.

“This stock has moved completely off fundamentals.” Anthony Chukumba, an analyst at Loop Capital, told CNBC’s “Squawk on the Street” on Monday. “This is being driven very heavily by retail investors, individual investors, many of whom trade in Robinhood and many in options. And GameStop has an incredibly high interest in shorts and the shorts are squeezed.”

“In a word, the basics are terrible,” added Chukumba. “Increasingly, gamers are downloading full games. They just download those games, they don’t buy physical games. GameStop just doesn’t really participate in them.”

– CNBC’s Tom Franck contributed to the coverage.

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