Meme stock GameStop Corp jumped nearly 50% in early trading on Wednesday as the video game retailer’s first profitable quarter in two years squeezed bearish investors and ignited a surge in other stocks popular among retail traders.
AMC Entertainment Holdings Inc gained 5.3%, while Bed Bath & Beyond rose 7.5%. Both shares, along with GameStop, were at the heart of a meme stocks frenzy in 2021 driven by small investors coordinating on social media.
Among other stocks popular with retail investors, Koss Corp climbed 9.5%, while the Roundhill MEME ETF rose 4.2%.
Grapevine, Texas-based GameStop, in which billionaire investor Ryan Cohen holds a majority stake and serves as chairman, recorded a 16% decline in costs during the quarter and surprised Wall Street analysts with a profit.
Investors saw this as an early sign of turnaround for GameStop, whose core business of selling new and pre-owned videogame disks is shrinking as consumers move to downloading games digitally or streaming.
GameStop was the most-touted stock on investor-focused social media site stocktwits.com.
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The stock hit its highest level in more than four months with 12.7 million shares changing hands in the first 15 minutes of trading, among the top five most traded U.S. stocks.
“Luckily, this go around is not due to meme investors, but an actual tangible fundamental event,” said David Wagner, portfolio manager at Aptus Capital Advisors.
“Short interest has been a driver in this stock for quite some time and that will also be the case today.”
Souring short bets
When there is a rush of demand from short sellers looking to exit their bearish bets amid a rise in a stock’s price, it pushes prices even higher, resulting in a short squeeze.
Carvana Co, another stock with high short interest, jumped 20% after the used-car retailer said it expects a smaller core loss in the current quarter.
Short sellers betting against GameStop have lost $610 million since the start of the week, analytics firm Ortex estimated, adding that about 24% of GameStop’s publicly available shares were in short position.
Wedbush raised its price target on GameStop’s shares to $6.50 from $5.30 after the results, as the brokerage believes the lower cost structure reduces the risk of ongoing losses.
However, “longer term, the company cannot save its way to prosperity,” Wedbush analyst Michael Pachter said.
“I would continue to bet my first born male that this company will be irrelevant in the coming few years,” said Wagner, who doesn’t have a position in GameStop.
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