GameStop Posts Best Week in a Month Fueled by Reddit Frenzy
(Bloomberg) -- GameStop Corp. shares had their best week this month, and second-best ever, amid a flurry of day trader activity.
The video-game retailer jumped 151% this week as amateur investors continued to promote the stock on social media platforms like Reddit and StockTwits. More than 90 million shares changed hands Friday, more than double what’s been seen in the past two weeks, and adding to the 233 million that traded over the past two sessions.
“It would be unwise to discount the power of the collective retail trade and this is an example of the resurgence of energy either on GME again or through another stock,” said Amy Kong, chief investment officer of Barrett Asset Management.
The stock has been a poster child for volatility so far this year. Euphoria for the video-game retailer set off a 2,728% rally last month before shares came crashing down and wiped out about $30 billion in market value. The retail craze drew ire from Washington and led to a House Financial Services Committee hearing on retail trading and the video-game distributor last week.
Options traders were betting that the stock could do much better Friday after more than doubling so far this week. The most-active option traded on the stock Thursday was a contract on GameStop spiking to $800 on Friday. Some 52,000 contracts changed hands during the session betting on this one-day gain of 636%. The stock swung between gains and losses Friday before finally settling down 6.4% to $101.74.
“From a top-down perspective, I would caution that these price spikes continue to signal frothiness in certain corners of the market and represent sharp deviations from company fundamentals,” Kong said.
Analysts cited a tweet by activist investor and GameStop board member Ryan Cohen posted shortly before the stock began its resurgence on Wednesday, suggesting Reddit traders may view the photo of a McDonald’s Corp. ice cream as a cryptic message to resume buying. A report from Citron Research suggesting the company purchase Esports Entertainment Group Inc. to pivot away from its declining retail business provided a further catalyst.
Even with the volatility on Friday, shares remain about seven-times higher than the average analyst price target of about $13, according to data compiled by Bloomberg. None of the eight analysts who follow the stock rate it a buy -- it has four hold-equivalents and four sell recommendations.
While the stock’s revival caught many on Wall Street flat-footed this week, the craze is “nothing like what we saw in late January,” according to Eric Liu, the co-founder of Vanda Research. “Part of that is due to a broadening of the opportunity set” with retail traders flowing into cannabis and crypto-exposed companies, he said in an email.
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