After falling off the face of the planet, GameStop is back and buzzing after a surge in its share price. What could be causing this sudden soar?
At the same time the US Senate passed the historic $1.9 trillion pandemic relief bill, Ryan Cohen, co-founder of a leading pet e-commerce store, was tapped to create a committee to transform GameStop’s outdated business model. These two events may have caused a soar in the share price, and here’s why.
Before I go into the nitty-gritty of stocks and financial yahoo, I’m just going to give an obligatory disclaimer. This is not financial advice, and I have no financial background other than watching people YOLO their life savings on r/WallStreetBets.
The Cohen effect
In early January, Cohen was invited to join the GameStop board of directors after building a 10% stake in the company. With his impressive background in e-commerce and a track record of pivoting underperforming companies, this was seen as a hail Mary for GameStop.
Cohen said in a press release that he would seek to transform GameStop from its brick and mortar roots to an e-commerce behemoth. Finally, with recent news, we are seeing exactly that.
Shortly after this news was released, GameStop’s stock jumped nearly 42 points, opening at $154.83 per share and closing at $192.43, with a day peak of $203.
This jump in share price also came with the news that the US Senate had passed the pandemic relief bill – Joe Biden expects citizens to receive their stimulus checks later this month. A recent survey conducted by Deutsche Bank showed that respondents planned to put 40% of any stimulus money into the stock market, and strategist Parag Thatte expects that $170 billion could be pumped into stocks.
Obviously, GameStop ($GME) isn’t the only stock in the market to invest in, although the news would have you believe otherwise. However one could argue that a large portion of this predicted capital could find its way to $GME due to its David versus Goliath appeal.
It is safe to assume that these two events may cause a rally around the $GME stock, however, some believe that’s not the cause of the surge. $GME stock has been on a steady uprise since late February after its tremendous crash. Now a new market mechanic called a ‘Gamma Squeeze’ is pumping fuel into the $GME stock rocket ship and some believe it’s preparing for a one-way flight to the moon.
WTF is a Gamma Squeeze?
Now I’m sure you’re tired of the term ‘squeeze’ by now – it’s been thrown around more than a bottle of KY jelly at a pensioners’ orgy.
A squeeze in its essence is a market phenomenon that forces investors who shorted the stock to buy back the shares they borrowed at a higher price. By placing pressure on short-sellers, investors can create a feedback loop that can continually drive the price higher and higher. To put it briefly, a gamma squeeze is this process on fucking steroids.
So how high will the price go? There is no way to know for sure, however, some anonymous Reddit users think that the individual share price could reach highs of $130,000 per share.
Yes, we know this all sounds ridiculous, but unprecedented market events will yield speculation of unprecedented results. Reddit user u/KitrosReddit used AI modelling to show that under the right conditions, $GME share price could hit these extreme heights.
Will this happen? I personally heavily doubt it will reach that high a share price, however the general consensus is that the price is likely to rise higher than its current valuation of roughly $200.
Forbes contributor George Calhoun, author of Price & Value: A Guide to Equity Market Valuation Metrics, has expressed his praise for the diamond-handed retail investors. He dispels the media narrative of a poorly orchestrated pump and dump, describing the move as a “Hyper-rational” decision based on “highly accurate calculations of specific outcomes which possess a much higher degree of certainty.”
We are really unsure to expect next, but we are sure as hell excited to see how many more memes are created from this historic event.