American video game and gaming merchandise retail, GameStop, recorded a magnificent surge in stock. Hedge funds and short-sellers had predicted a slump, but a Reddit community turned the situation upside-down for GameStop. Though the company managed to skyrocket, investors might want to not to fall into FOMO as the phenomenon is likely to be another bubble.
GameStop and the Reddit community: behind the story
The WallStreetBets (WSB) community on Reddit started it all. The community often targets short-sellers, or simply, investors who benefit off plummeting stocks. Quoted from CNN, Millennials and Gen Z-ers hate short-sellers due to its house-of-cards financial system. This system was, according to them, what led to the 2008 crisis.
How do short-sellers work? These short-sellers borrow shares and sell it on the market while the price is still normal. Once the stock price drops, they buy back the shares at a lower price and return the borrowed shares. This is pretty much what was predicted to happen on GameStop. Except, GameStop is soaring as high as ever thanks to the Reddit community, WallStreetBets.
In just a year, a single share of GameStop multiplied from $4 to $200. Noted from CNN, GameStop’ stock was the only one surging 134% higher by the end of Wednesday’s trade. Meanwhile, all three major stock indexes suffered a drop.
How did it happen? The members of WSB simply bought GameStop’s stocks. Through no-fee apps like Robinhood, more people are given the freedom for a “democratized investing”, CNN quotes. Thus, armchair investors can access sophisticated trading instruments like options. Millions of WSB members swarmed in to buy GameStop’s stock, which later skyrocketed the company’s stock.
Accordingly, GameStop is not the only company supported by the community. AMC, a movie theatre chain that got slumped by the pandemic, also experienced the same phenomenon. The hashtag #SaveAMC even trended on Twitter, attracting more mass of people into the scheme. AMC itself recorded more than 200% rise in its stock on Wednesday after the members of the community commenced the strategy.
GameStop bubble might pop, but no one is sure when
GameStop, as an offline retail shop for video game and gaming merchandise, is losing its relevancy due to the pandemic. The company’s earnings potential is depleting and might lose money this year and next. Not to mention sales growth is depleting with less and less people frequent shopping malls.
Some investors argued that GameStop was undervalued. However, CNN debates that GameStop, along with other companies promoted by WSB like BlackBerry or AMC, very unlikely to have the fundamentals to maintain the surging stock prices.
GameStop will most likely surge for quite some time. More people might get into the bandwagon. Some are going to stay until it peaks, while some might not withstand the long wait. One thing for sure is, the bubble will eventually pop.
Read also: Challenging TikTok, Reddit to Acquire Dubsmash
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