A bullish analyst double-downgraded the GameStop stock, which set an intraday high of $159.18 Monday before sliding to less than half that in recent trading.
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The GameStop stock rocket veered crazily after a bullish analyst double-downgraded the stock, soaring to an intraday high of $159.18 and then plunging to less than half that. Even after that slide, it was the highest closing price yet, for a gain of 18% to $76.79.
Shares were briefly halted due to volatility. Expect more wild swings in the days to come.
On Monday, 175.5 million shares changed hands, trailing behind the record volume set this past Friday. The stock has soared 96.3% in the past three trading days, and is up 307.6% month to date.
Tesley Advisory Group analyst Joseph Feldman was previously the stock’s most bullish analyst listed by FactSet. Following GameStop (ticker: GME) stock’s 970% rise from his Sept. 14 upgrade through this past Friday, Feldman lowered his rating all the way to Underperform from Outperform. Still, he raised his price target to $33 from $22.
Prior to a 51% jump on Friday, GameStop stock’s highest close was $63.30, set way back on Dec. 24, 2007.
“The sudden, sharp surge in GameStop’s share price and valuation likely has been fueled by a short squeeze, given the high short interest (still +100%), and, to a lesser degree, speculation by retail investors on forecasts for the new gaming cycle and the involvement of activist RC Ventures,” he wrote. “We believe the current share price and valuation levels are not sustainable, and we expect the shares to return to a more normal/fair valuation driven by the fundamentals.”
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Analysts at Hedgeye noted the stock blew past their expectations. They removed the stock from the firm’s Best Ideas list, though it is still on their “Long Bias” list, as they reevaluate the stock’s fundamentals.
What triggered the stock’s rapid rise seems to be a mix of factors, though it began with excitement for the addition of three former Chewy executives to the company’s board. That included Chewy co-founder Ryan Cohen, whose RC Ventures holds a 13% stake in the company. Cohen has argued the company needs to pivot more toward e-commerce.
We thought investors were getting ahead of themselves around $18, given the industry-wide headwinds the retailer was navigating. On the list are factors such as the growth of downloadable games directly on consoles, and a future where streaming and free-to-play online games continues to cut out its core business. Our initial bearish piece wildly underestimated the appetite for the stock from retail investors, as well as the coming squeeze prompted by speculative options activity paired with the stock’s sky-high short interest.
The stock has recently been the most-discussed name on the social media site Reddit, far more than even Tesla, according to one sentiment-tracking site. Such retail traders often use options on platforms such as Robinhood while posting memes joking about and touting their favorite stocks.
“We think the Robinhood impact is real,” Feldman told Barron’s in an email, adding that similar excitement from that crowd appears to be moving Stitch Fix (SFIX) and Bed Bath & Beyond (BBBY) stock. Both swung wildly on Monday.
Other stocks mentioned prominently on the WallStreetBets forum on Reddit include AMC Entertainment Holdings (AMC), BlackBerry (BB), Express (EXPR), and Nokia (NOK). They all posted double-digit gains on Monday.
Write to Connor Smith at [email protected]
