May is for memes? Shares of GameStop, the poster child for the Reddit-inspired meme-stock madness of 2021, have soared about 60% so far this month. It isn’t exactly clear why. But it’s often been difficult to find rhyme or reason when it comes to movement in GameStop stock.
The shares soared another 42.3% in premarket trading Monday. While AMC Entertainment jumped 9.6%.
The videogame retailer reported mixed results for the fourth quarter of 2023 back in March, with revenue tumbling nearly 20% from a year earlier and earnings per share rising more than 30%.
GameStop, now run by Ryan Cohen, the investor who was the founder and former CEO of online pet-supplies retailer Chewy and briefly held an activist stake in Bed Bath & Beyond before it went bankrupt, no longer holds earnings conference calls with analysts and investors.
There has been no other corporate news of note from GameStop since the earnings release. Several top executives and board members have left the company in the past few years, which means that investors buying GameStop are clearly betting that Cohen can turn things around. Investing in GameStop stock is almost like buying into a cult of personality, the way that some Tesla investors revere Elon Musk.
GameStop wasn’t immediately available for comment about the recent stock surge. But it could be another case of a short squeeze, given that about 20% of the float is held by short sellers who borrow the stock and sell it with the hopes of buying it back later at a lower price and pocketing the difference. When the price of a heavily shorted stock rises instead of falling, that puts pressure on short sellers to buy back shares, or risk big losses. And any buying pushes the price higher. That’s the squeeze.
Michael Pachter, an analyst at Wedbush Securities who follows GameStop, said in an email to Barron’s that Keith Gill, the investor who posts on Reddit, X, YouTube and other social media networks as Roaring Kitty, and other GameStop bulls have recently been making references to the movie “Run Lola Run,” an apparent nod to GameStop’s stock “running” up due to a short squeeze.
Pachter argues that there is no fundamental reason for GameStop stock to be rallying. He told Barron’s that there is “lots of speculation about how GME is going to dominate sales of tokens on the blockchain, movie rentals [and] digital goods” but that “the missing element is anything fundamental that shows the business is improving.”
Pachter has a Sell rating on GameStop stock with a price target of $5.60. That’s nearly 70% below the current price. Time will tell if Pachter’s bearishness is the right call. But for now, the GME bulls are replaying 2021’s meme.