GameStop (GME) Goes to the Moon

The GameStop news is out. If you didn't know GME before, now you do. The stock price has gone parabolic with a short squeeze and no fundamentals.

Well, that's the story widely being circulated, but there's more to it in our opinion.

Just two weeks ago, the financial media had printed little about GameStop. The gaming retailer was among Wall Street's most hated stocks with some hedge fund managers calling it the next Blockbuster. We took notice when co-founder Ryan Cohen acquired a 12.9% stake in GameStop last year for $76 million.

Here's a clip of Chris Wang presenting GameStop on the Runnymede Quarterly Call for clients held on January 11, 2020.

Fallacy of No Fundamentals

To say there are no fundamentals is an oversimplification. Historically, the release of new game consoles increases foot traffic to GME stores and boosts company's earnings. The new Sony PS5 and Microsoft Xbox Series X should do that as customers buy consoles and games. Today, the global pandemic has gamers eager to buy consoles and games resulting in console shortages. It's worth mentioning that both consoles still play game discs and DVDs so betting on the complete demise of this retailer could be premature.

Wall Street analysts are forecasting zero earnings this year for GameStop. If history is a guide when it comes to a new console cycle, GME should have positive earnings surprises throughout 2021. Factor in the potential of Cohen's RC Ventures plans to transform the company into a specialized e-commerce retailer of gaming products and you've got a case for positive fundamentals to drive the share price.

An Unthinkable Rise

Of course, that was at $20. The rise that we have witnessed from $20 to $380 is like nothing I've witnessed in my career. There has been a confluence of factors and consequences. Investors on the WallStreetBets subreddit forum have been promoting GameStop aggressively, openly comparing this phenomenon to a battle between David (individual investors) and Goliath (the Wall Street establishment.) Social Capital’s Chamath Palihapitiya jumped into the stock, tweeting Tuesday that he bought GameStop call options betting the stock will go higher. Even Elon Musk, co-founder and CEO of Tesla, weighed in with a tweet yesterday that drove the stock to new highs in after hours trading.

Meanwhile, Citron Research founder, Andrew Left gave up shorting the stock, citing harassment from an "angry mob" of GameStock investors. Melvin Capital Management closed out its short position and had to take in a nearly $3 billion dollar infusion to shore up its finances from Citadel LLC and Point72 Asset Management.

Investing versus Speculating

This is a classic example of investing and speculating. There is a difference and it can get very dangerous if you fail to recognize when one becomes the other. Not limited to GameStop, we are seeing a high short interest bubble whereby investors are specifically seeking to make quick money in stocks that have a high percentage of bets against them by short sellers.

Kudos to Brian McGough for being among those who made a great call on the long side. Yesterday, he reminded investors to keep a level head.

Once you've got a bubble, things don't make sense. Where is GameStop going next... $400, $500, $1000?! It may feel like the sky's the limit right now but be careful. It's always risky getting on a rocket ship. May you have a safe return to Earth, something that Elon Musk knows quite a lot about.

"Retail GameStop" by is licensed under CC BY 2.0

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About the Author: Andrew Wang

Andrew Wang


Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede.  Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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