GameStop (GME) and AMC rebound, what’s next?
GameStop shares more than doubled at the open Friday after trading restrictions were removed by online brokers.
By the market open Friday morning on Wall Street (overnight here in AU), GME shares had more than doubled, hitting as high US$339.71 at the time of writing.
Gamestop shares have experienced extreme volatility over the past 48 hours spurred on by a social media frenzy among Reddit users rallying behind heavily shorted stocks. GME's price had jumped more than 1,700% by mid week from the start of the year, to a high of US$494, before dropping more than 74% Thursday.
Also read: How to buy GameStop shares
Stocks, including GameStop, AMC Entertainment and Nokia, that appeared linked to Reddit discussion forum Wallstreetbets plunged after several retail share trading apps, including RobinHood and eToro, halted trades in an apparent attempt to settle the extreme volatility.
Looking at Gamestop's fundamentals it's hard to justify any stock valuations either before or after the vault in prices. According to data from TradingView, Gamestop has total assets of $US2.6 billion for a total of 69.7 million shares of common stock averaging out at $37.29 per share.
That price suggests assets were well above the "heavily shorted" price of $US11 seen less than three months ago in November 2020 and more than ten times less the value of the current price.
However, In the words of Benjamin Graham, author of Security Analysis, "To speak of these prices as representing 'investment values' or the 'appraisal of investors' is to do violence either to the English language or to common sense, or both."
Mark Cuban, Shark Tank billionaire investor was positive about the developments, saying that it's not a new phenomenon for "heavily shorted" stocks to be "targeted" in this way. He went on to tell CNBC that "If it's a good company, it's a good company. If it's a bad company, it will end up going out of business,"
I got to say I LOVE LOVE what is going on with #wallstreetbets. All of those years of High Frequency Traders front running retail traders,now speed and density of information and retail trading is giving the little guy an edge. Even my 11 yr old traded w them and made $
— Mark Cuban (@mcuban) January 28, 2021
WallStreetBets' next endeavours
Capitalising on a vendetta against hedge funds and major Wall Street institutions, Wallstreetbets are broadening their activities to other companies liable for winding up. Some of these include the ailing mobile phone manufacturer Blackberry, struggling video retailer AMC and National Beverage have all had big stock gains in January as a result of mentions on the Wallstreebets reddit forum.
A grassroots movement on markets has been largely unheard of until now. This market shock, according to Reddit co-founder Alexis Ohanian, are signs that retail investors are increasing their financial leverage and gaining market power where only established financial firms have traditionally been able to compete.
The extent of WallStreetBets's financial power having troubled RobinHood enough to halt and manipulate GME trade an act that Ohanian called a "justified outrage." However some are wondering if WallStreetBets could get shut down for their financial activities.
Chief Executive Officer of Reddit, Steve Huffman was asked if the WallStreetBets forum could face deplatforming to which he replied that the so called "degenerates" are far from "perfect but they've been well in the bounds of our content policy."
Robinhood and eToro have since reopened tradings for GME and other stocks, although there are no promises this state will remain.