Earlier this week, GameStop’s stock rose an unheard of 160% in mere hours Monday morning, reaching an all-time high of $159. By the day’s end, the price dropped nearly in half, though that kept its stock price up over 300% so far this year and over 3,000% from its 52-week low. Impressive numbers for a retail company that has been financially in flux for the last few years.
So, why this crazy surge? GameStop can thank the massive jump to what investors are calling “meme stocks.” Thousands and thousands of small investors, who use sites like Robinhood and Reddit, are buying GameStop stock in numbers that continue to shock the market.
At first glance, it would be easy to say the meme-stock boom is nothing but a speculative bubble. The reality of the situation is, though, the meme-stock boom is exactly what it claims to be. The small investors on Robinhood or r/Wallstreetbets subreddit, amongst various other sites, are involved in a very conscious effort to purchase these stocks and then drive the prices up. There is not one individual leading this charge, it is a collective effort, one that is showing its success.
What these many small-time investors are doing is taking companies that Wall Street hates, legacy businesses such as GameStop that provide weak economic fundamentals, and embracing them. It’s not that those on Robinhood or Reddit are particularly in love with GameStop for its future prospects, it mainly comes from finding a cheap stock with a relatively low market cap, and one that is heavily shorted. This means that the smart hedge-fund managers think, and are betting, that these stocks are going to fall. GameStop fits into all of these categories.
But the recent jump for GameStop has been significant. Over the past two weeks, this amazing jump has created over $2 billion in gains for GameStop’s three biggest shareholders. Chewy co-founder Ryan Cohen has a 13% stake in GameStop, and now his $75 million investment is worth over $1.3 billion. During that time, he made $90 million a day. Donald Foss purchased 5% of GameStop last February for close to $12 million. As of today, his stake in the company is now worth over $500 million. GameStop’s CEO George Sherman has a 3.4% stake in the company and has seen its value climb to over $350 million.
AMC Entertainment is now benefitting from a meme stock surge as investors from Reddit, Robinhood and the rest have helped AMC’s stock jump nearly 300 percent. Three weeks ago AMC Entertainment’s stock was in the tank at $2.01 a share. They now sit at $20.31. For AMC, their jump was also fueled by their announcement that they had secured new financing, which would allow them to avoid bankruptcy and remain in business well into 2021. Will this help save movie theaters?
The question now becomes, how long will this last? It’s been impressive what the small investors have been able to accomplish up to this point with GameStop, picking the right stock and coming together over the internet in a sort of self-organized investing community. Not only are they driving the price up but pretty much blowing it out of the water. But the naysayers predict that because GameStop is a heavily shorted stock, the fall will come quickly. Those investing, though, are calling upon each other to hold tight.