are taking a victory lap this week after shares of the struggling company surged more than 90% in the last two days, putting the stock on pace for its best weekly performance on record.
For weeks, members of Reddit’s popular WallStreetBets forum have been touting GameStop, encouraging others to scoop up shares of the videogame retailer and begin making bullish bets. Several posts on the forum had noted that short sellers’ bearish GameStop bets had been at elevated levels.
Short interest, which indicates the interest of investors betting a stock will fall in value, has hovered around 138% of the stock’s free float this year, FactSet data show. This makes it the second-most shorted company across the New York Stock Exchange and
according to Dow Jones Market Data. That had some Reddit users predicting that the stock might rapidly rise if short sellers suddenly had to cover their bets by buying back shares should the stock suddenly rise in value.
This week, that forecast finally appeared to take shape after news of changes to GameStop’s board sent shares climbing.
The announcement pushed shares up 13% on the day. On Wednesday, gains accelerated and GameStop catapulted 57% higher, its biggest share-price jump in history. GameStop gained an additional 23% in midafternoon trading Thursday.
On Reddit Thursday, WallStreetBets users were celebrating GameStop’s gains. Many posted screenshots of big wins from bullish options bets. Several talked about how they would spend their profits. One user posted that the experience demonstrates that the WallStreetBets forum “runs the market.”
Once just a small presence in the financial markets ecosystem, retail traders are increasingly influential. Retail-trading activity has exploded within the last year as individual investors, many of whom are stuck at home, have begun to try their hands at trading.
More than 10 million new brokerage accounts were opened in 2020, JMP Securities estimates. And on peak trading days last year, individual traders are estimated to have accounted for nearly 25% of trading activity, Citadel Securities estimates. Through social media and the ability to make free stock trades, individual investors have been able to turn companies into market sensations—GameStop being among the latest.
GameStop’s rapid share-price moves, analysts said, were spurred by news of Mr. Cohen’s addition to the board, as well as the company’s announcement Monday that online sales sharply increased during the holidays. Mr. Cohen’s investment firm has been building up a stake in GameStop and has urged the company to improve its online business. Mr. Cohen is known for the e-commerce savvy he displayed at Chewy, the pet-products online retailer.
That set the stage for the short squeeze, analysts and individual investors claimed.
“The shorts are freaking out,” said
a research analyst at Wedbush Securities. Meanwhile, “Robinhood message boards are bragging.”
One individual investor who was celebrating GameStop’s win Thursday was Jackson Call, a 24-year-old trader. He had been seeing WallStreetBets users encouraging others to buy shares of the company in recent weeks.
“I was thinking ‘GameStop? What in the world?’” said Mr. Call, a student in North Carolina. “I kept saying ‘No way am I going to buy into this thing.’”
But this week he saw CNBC’s
talking about GameStop. He decided to purchase roughly 80 shares of the company for slightly more than $20 apiece at the opening bell Wednesday, he said. That was right before the stock catapulted higher.
“I think it’ll just keep marching higher because there’s such a high short interest,” Mr. Call said. He picked up more shares of GameStop Thursday when the stock briefly pared its early morning highs.