24/7 Insights
- Investing in companies like GameStop Corp. (NYSE: GME) is amazingly risky.
- Potentially unknown investors driving social media can cause wild swings in the share price.
Before the market opened on June 3, GameStop Corp. (NYSE: GME) shares were up over 100%. Even if they trade lower during the day and the next day, it raises the question of how potentially unknown investors driving social media can cause such swings.
Keith Gill, aka DeepF—Value, posted a screenshot on Reddit, according to Bloomberg, “which shows five million shares bought at $21.27 per share and 120,000 call options worth $65.7 million due to expire on June 21.” The stunning thing is that it was just a screen shoot. There is absolutely no reason to believe it is accurate. The stock closed at $23 at the end of the previous day.
GameStop’s value has fluctuated over the past two months. At the end of April, it traded at $10, and it hit $64 in the middle of May. It collapsed to $18 late in May and traded near that price until the new 100% spike.
It is worth noting that GameStop’s financial situation is less than mediocre. In the most recent quarter, revenue dropped from $2.2 billion a year ago to $1.8 billion. Earnings did rise modestly, from $48 million to $63 million. It has only $922 million in cash on its balance sheet. After the 100% rise, GameStop had a $16 billion market cap.
Investing in companies like GameStop is amazingly risky. A trader can get in at relatively low prices and ride to the top as it jumps by double-digit percentages. That trader must time the stock sale almost perfectly to book a massive profit before shares collapse. Some investors buy at the peak only to book huge losses when the shares fall.
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