GameStop swung wildly on Monday and closed the session way off highs after retail investors active in chat rooms and hedge funds rushing to cover their short bets at one point pushed the stock above $150 a share.
Shares of the brick-and-mortar videogame retailer ended the day 18% up at $76.79 after soaring as much as 144.9% to $159.18. The stock briefly turned negative within two hours of hitting its session high and was halted for volatility multiple times throughout the session. More than 175 million shares has already changed hands, far surpassing its 30-day average trading volumes of 29.8 million shares.
GameStop shares have soared more than 300% in January alone and are up over 400% in three months. The stock was worth just $6 apiece four months ago.
Early Monday's jump in shares came despite a double-downgrade from Telsey Advisory Group. The Wall Street firm slashed its rating on GameStop to underperform from outperform, saying there's a disconnect between fundamentals and valuation.
"The sudden, sharp surge in GameStop's share price and valuation likely has been fueled by a short squeeze, given the high short interest, and, to a lesser degree, speculation by retail investors on forecasts for the new gaming cycle and the involvement of activist RC Ventures," Telsey analyst Joseph Feldman said in the note on Monday.
"We believe the current share price and valuation levels are not sustainable, and we expect the shares to return to a more normal/fair valuation driven by the fundamentals," the firm added.
GameStop has been a popular short target on Wall Street. In fact, more than 138% of its float shares had been borrowed and sold short, the single most shorted name in the U.S. stock market, according to FactSet citing the latest filings.
On Jan. 11, news broke that activist investor and Chewy co-founder and former CEO Ryan Cohen is joining GameStop's board. The stock jumped on the announcement on hopes Cohen would drive a change in strategy. The gain triggered a rush of short covering from hedge funds and traders who bet against the stock. When a shorted stock trades sharply higher, short sellers would have to buy back shares to cut their losses, which fuels the rally.
GameStop has also been a hot topic in online chat rooms, Twitter and Reddit as some retail investors and day traders aim to push shares higher and squeeze out short sellers. GameStop was the most actively traded stock on the Fidelity platform on Monday, company data showed.
One post on the popular "wallstreetbets" Reddit forum Monday morning said "IM NOT SELLING THIS UNTIL AT LEAST $1000+ GME." The post quickly drew more than 5,000 comments.
"It's just another reflection of the ebullient mood," Peter Boockvar, chief investment officer at Bleakley Advisory Group, said Monday of GameStop, "Again, it will matter when it does, whenever it does."
Citron Research, a vocal GameStop short seller, said Friday it would not be commenting on the company any longer because of attacks from the "angry mob" that owns the stock. Citron said there were too many people hacking Citron's twitter account on Friday, and it canceled a livestream where it was going a detail five reasons why the stock will go back to $20.
Telsey's 12-month price target is $33. According to FactSet, the average price target of analysts is just $12.39, far below where it was trading Monday.
"This stock has completely disconnected from the fundamentals." Anthony Chukumba, analyst at Loop Capital, said on CNBC's "Squawk on the Street" on Monday. "This is very much being driven by retail investors, individual investors, many of them trading on Robinhood, many of them trading on options. And GameStop has an incredibly high short interest and the shorts are getting squeezed."
"The fundamentals, in a word, are terrible," Chukumba added. "Gamers are increasingly doing full-game downloads. They're just downloading these game, they're not buying the physical games. GameStop just doesn't really participate in that."
— CNBC's Tom Franck contributed reporting.
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