How do you go from $4 to $35 a share in about two years? And then from $35 to $325 a share in just a couple of days?
The first question is much easier to answer than the second one as it pertains to the ongoing saga of video game retailer GameStop and its market performance that has everybody talking right now.
Before we get into what the heck is going on with GameStop stock right now, let’s first flashback to 2019 for a quick little recap on the once-struggling stock. Just two years ago, you might recall seeing stories about how the video game outlet’s stock was struggling big time. In fact, it dipped from $16 a share to just $4, staying in this low range for about two years – even as more and more consumers purchased video games to pass more time spent at home during the COVID-19 pandemic. Even just last August, the GameStop value was about $5 per share. The latter part of 2020 was kinder to GameStop, with value gradually increasing to about $35 per share.
But how do you go from $35 a share to $325 a share – more than an 8,000 percent increase – over the course of a few days? We can honestly say that this is a first of its kind for the stock market – GameStop’s rise appears to be due to a community of Reddit users with the goal of pushing value to $1,000 per share. The Reddit forum Wall Street Bets and its members are purchasing the stock and thereby driving up its value as a way to “stick it to the man.”
Users on the forum are being encouraged not to sell so that the stock continues to climb higher and higher. While the goal among the group appears to be the $1,000 per share value, some users are now targeting $5,000 per share.
Will GameStop’s stock value hold in the long-term? That’s very unlikely, largely because the video game retailer has shown no signs of a business model that returns this sort of value to its shareholders. What’s more is economic experts say that the earnings power is hardly enough to support a share price as high as it is now, especially as much of GameStop’s brick-and-mortar business model has been replaced by online purchasing. GameStop still largely relies on consumers physically visiting its stores to make purchases, something that was going out of style a year ago and was certainly even more impacted by the COVID-19 pandemic.
So while GameStop’s high value seems to be short-lived, there’s concern that this act of large numbers of users acting in unison on Wall Street can continue to happen. But stock values generally reflect the projected value of a company, so GameStop’s moment in the spotlight will likely be ending soon. What’s happening now isn’t illegal, but with all eyes on it, restrictions or regulations could be put in place so that such irregularity doesn’t occur again.
At the time of writing, investing platform Robinhood has barred GameStop trades. Supporters of the movement are floating the idea of a class-action lawsuit to retaliate.