Like fidget spinners, ice-bucket challenges and “Pokémon Go,” GameStop shares are a fad that will likely fade.
The videogame retailer has had an astounding 2021.App-wielding investors crowdsourced a wave of stock purchases that pushed the price up to a high of around 17 times where it started the year.After a couple of loop-the-loops, the shares are still up more than 700%.
As long as trading remains free , the army of retail investors that propelled GameStop and a clutch of other unlikely stocks beyond all expectations earlier this year will remain a force in the market.Over 10 million individual-investor brokerage accounts were opened in the first half of the year, according to JMP Securities.
But that doesn’t mean such investors will always want the same thing.On the contrary, the appeal of GameStop trading has progressively waned, and it is hard to see what might turn the tide.
Current business fundamentals don’t justify the stock price, even with the most optimistic view of Chairman Ryan Cohen’s aggressive modernization plans .After raising capital, GameStop is now flush and going about the boring, time-consuming business of business.
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Of course, that isn’t really the point: GameStop’s rise was never about fundamentals.
For some it was a David-versus-Goliath battle to defend a nostalgic childhood brand against hedge funds.For many others it was the chance of a big and rapid payout.But these reasons no longer line up behind the stock either.
GameStop gained a kind of countercultural appeal as hedge funds shorted the retailer, but they have largely retreated.The short squeeze, whereby GameStop’s rising stock price got a further boost from bearish investors seeking to cut their losses by buying back shares they sold short, has long since played out.A similarly technical move—the decay of call options—could help the share price on its way down: As call options near expiration, market makers will sell off some of the shares held to cover the options they had offered.
The chances of a big payout have also receded as GameStop shares have fallen into a pattern of gradual falls and the odd sharp rise.The retail excitement has moved on to different assets with greater potential for a big bounce.Cryptocurrency and vaccine stocks are the latest craze , according to data from VandaTrack.
The power of the crowd was an important part of small investors boosting GameStop skyward.It also could work in reverse: Small sales across a large number of shareholders can add up to big moves.
After the summer holidays, it might be tempting for early GameStop champions to sell shares to realize profit, pay tuition or possibly just raise cash to fund the next hot WallStreetBets tip.
To be sure, shorting GameStop has been a bad bet for much of this year, and the Reddit crew could mount another offensive in the stock’s favor.Early investors might cherish their lucky charm while late buyers sitting on losses hold out for the next rally.Behavioral economists are likely more familiar than stock analysts with the unusual investment risks such meme stocks present.
But it seems a fair bet that the excitement on social media will continue to move on.The retailer might be turning around its business, but that isn’t the point.GameStop stock will surely succumb to gravity in the end.
Heard Stock-Picking Leaderboard According to a recent Charles Schwab survey, 15% of all U.S.stock market investors said they first began investing in 2020.Picking a stock, however, may not be as easy as it sounds.WSJ’s Aaron Back explains the factors at work when stock-picking.
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Appeared in the August 18, 2021, print edition..
