A head-scratching David and Goliath story is playing out on Wall Street over the stock price of a money-losing video game retailer. An army of small-pocketed, optimistic investors is snapping up shares of GameStop. That's in direct opposition to a group of wealthy investors who are betting on the retailer's stock price plunging.
The result: GameStop's stock soared nearly 145% in less than two hours Monday morning, only to come back to earth to close with a modest 18% gain on the day. The shares were set to jump again before the start of trade on Tuesday.
Overall, the stock has risen more than 400% over the past three months — unusual for athat has lost $1.6 billion over the last three years. Its stock fell for six straight years before rebounding in 2020. But GameStop has been a target of many professional investors who say the company will continue to founder as sales of games continue to move online.
Investor says family was threatened
These investors have been betting that GameStop's stock will fall. The most public expression was made by short-seller Andrew Left of Citron Research, who said based on sales and earnings alone, GameStop's shares were worth no more than $20 each. He continued to predict the shares would plunge back to $20, even as they climbed well past that in the past week or so.
Left and others "shorted" the stock, which means they borrowed shares and sold them, hoping to buy them back at a cheaper price and pocket the difference. Such bets have been disastrous recently.
GameStop was trading at less than $18 a few weeks ago. Its stock shot higher after the company named three new directors to its board, including a co-founder of online pet-supply retailer Chewy, on January 11 to help speed its turnaround. The thought was that should help GameStop's digital transformation.
A cavalcade of smaller investors, meanwhile, has been exhorting each other online to keep the stock's momentum flying toward the moon. Many are pitching it as a battle of regular people versus hedge funds and other big Wall Street firms.
In a bizarre twist, the normally outspoken Left on Friday said he would no longer comment on GameStop's stock, saying he and his family had been threatened. A Youtube video detailing why Left thought the stock would fall was removed from the video-streaming site.
It took just five days for GameStop's stock to double after the company announced its board shakeup. This past Friday, it surged 51% in a single day — which is more than the stock market overall has risen in more than three years. For GameStop, the 51% move was only its second-best day of January.
The meteoric rise pushed some short sellers to get out of their bets, which is done by buying shares of the stock. That helped accelerate its momentum even further. On Monday, the push and pull was so extreme that trading in GameStop's stock was temporarily halted at least nine times for volatility.
It closed Monday at $76.79, after swinging between $65.01 and $159.18 earlier in the day.
"This is quite the experience for my first month in the stock market. Holding till infinity," posted one user on a Reddit discussion about GameStop stock. A moment later, another user said, "We're literally more powerful than the big firms right now."
That same sentiment carried well beyond internet message boards to Wall Street itself.
"As someone who started trading stocks in the late 90s in college, I would always remember watching when the small retail trading groups would get crushed by hedge funds and savvy short-sellers," Edward Moya, senior market analyst at OANDA, said in a report. "What happened with GameStop's stock is a reminder of how times are changing."
Additional reporting provided by CBS MoneyWatch's Stephen Gandel.