GameStop action grows as short sellers succeed

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Short sellers of

GameStop

the stock has just been squeezed. Shares of video game retailer rose nearly 94 percent on Wednesday, though earnings fell to about 57 percent as the market closed.

In an email to Barron’sIhor Dusaniwsky, S3 Partners, expressed optimism following Monday’s news that Chewy co-founder Ryan Cohen and two other former Chewy executives are joining GameStop’s board of directors (ticker: GME). This, combined with holiday sales, appeared to trigger a “long-running buying tsunami,” according to Dusaniwsky.

Barron’s recently noted, citing missing sales data from S3 Partners, that the stock appears to be ready for a short run, when demand for a stock rises briefly, as investors rush to cover bets that the price will fall. Investors have bet against GameStop shares, given industry trends, such as the rise of free online games. The growing trend of consumers to buy games online, rather than buying children in stores, has left the company’s physical disk business in an awkward place.

With increasing competition from e-commerce sites and larger retailers

Walmart

(WMT),

The best purchase

(BBY) and

Aim

(TGT) will probably need a bold new strategy for GameStop to change things. For now, investors are betting that Cohen and company can find one.

As of Wednesday’s close, more than 143.5 million GameStop shares were traded – almost double the previous volume of 77.15 million shares on October 9, according to Dow Jones Market Data. The stock closed 57% higher at $ 31.40, which was the highest close since August 2016.

Missing sellers fell $ 812 million in market losses for the day, according to Dusaniwsky of S3.

“While I agree that we see some shorts taken out of their positions due to the massive losses on the market today, it sounds like the question of chicken and eggs,” Dusaniwsky wrote, adding that he believes the long purchase led to short coverage. rather than the other way around.

Dusaniwsky does not expect a sharp decline in short-term shares over the next few days, noting that missing sellers lost $ 968 million in 2020 market losses, instead of going out, missing sellers increased their positions.

Ronnie Moas of Standpoint Research downgraded the stock to keep Buy after the move. Moas mentioned that he recommended the name on December 29, 2016, when the shares were trading around 25 USD.

“I can no longer leave the highest recommendation attached to this name, given the recent absolute and relative movement,” he wrote on Wednesday.

GameStop shares had a fair share of one-day pops. A deal with

Microsoft

triggered a 44% rally on October 8, but analysts noted that it looked like a mundane announcement of cloud-based infrastructure. Even with some profit-sharing from GameStop sales of Microsoft’s Xbox Game Pass Ultimate, it didn’t seem to move the needle.

“The profit share helps, but it may not be incremental compared to the sales / profit losses from the digital switchover. And, more digital also means less prone [games], the biggest factor of profit and loyalty [for GameStop]Credit Suisse analyst Seth Sigman wrote at the time.

Write to Connor Smith to [email protected]