GameStop Corp. (NYSE: GME) shareholders may have a feeling of deja vu. Trading of GME stock was paused due to a limit up limit down (LULD) pause on Monday, May 13. The 110% higher move fuels the idea that GameStop is ready to experience another short squeeze reminiscent of 2021.
But the GameStop stock price spike isn’t fueled by news that impacts the business. The company doesn’t report its first quarter earnings until June 5, 2024. The “news” is that Keith Gill (aka Roaring Kitty) took to X this weekend for the first time in nearly three years.
It was Gill who helped make GameStop one of the original meme stocks in 2021. The idea was to target short sellers, specifically Melvin Capital and force them to cover their short positions. This would drive up the price of the target stocks, creating a short squeeze.
Well, guess what? Short interest in GME stock is over 21% of the float. That’s drawing the attention of the meme stock crowd, who may be trying to catch lightning in a bottle again.
There’s Still No “There” There
There are two stories surrounding GameStop. One is coming from a determined group of traders who are intent on “sticking it to the hedge funds” that are shorting GME stock.
The other story is from those hedge funds and analysts who correctly note that the underlying fundamentals of GameStop remain underwhelming. In the company’s most recent quarter, the company missed on both the top and bottom lines.
At that time, the company reported an unspecified number of layoffs as it continues to face competition in its e-commerce business.
The bottom line is that GameStop’s legacy business is irrelevant to the needs of today’s gaming community. In fact, the company’s business model now focuses on allowing its chief executive officer (CEO) and chairman, Ryan Cohen, to buy and sell cryptocurrencies and other blockchain-related stocks.
Chase GME Stock at Your Own Risk
The GameStop analyst ratings on MarketBeat show that only Wedbush has weighed in on GME stock, and their Strong Sell rating should not inspire confidence. Remember that analysts rarely issue a Sell rating, let alone a Strong Sell rating.
It would be foolish to predict what will happen next with GME stock. All the fuel is there for another short squeeze. But before you get involved, remember that a short squeeze is the definition of the “greater fool theory.” That is, the price will keep going up as long as you can find one more buyer who’s willing to pay a higher price than you.
Also, what goes up can go down and often just as fast. That’s what many GME investors found out the hard way in 2021. That wasn’t all the fault of Robinhood Markets Inc. (NASDAQ: HOOD), which prevented investors from selling their stock when the inevitable downturn began.
If you’re going to take a spin on this roulette wheel, you need to understand that this surge is being fueled by fantasy, not fundamentals. That doesn’t mean you can’t make real money. But you need to have an exit plan in place and take your profits when you get them.
