Fool me twice? It appears GameStop meme investors got suckered — again.
Investors who jumped into the latest online frenzy over shares of the struggling video game retailer lost $13.1 billion in just three days from the mania's high, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSurge. That loss from the May 14 high now far exceeds GameStop's total value of $6.8 billion.
It's been a costly lesson for investors, some of which may have lost billions the last time on GameStop and other highly shorted stocks touted on social media. The 2023 movie "Dumb Money" highlighted the absurdity.
"The resurgence of Roaring Kitty's influence on meme stocks like GameStop demonstrates the power of social media and individual investors in shaping market dynamics," market analyst Tobi Opeyemi Amure of Trading Biz said. "This event is reminiscent of the 2021 frenzy that sent shock waves through the financial world."
Fool Me Twice?
The GameStop 2.0 madness started last week when a vague post on X (former Twitter) by online influencer "Roaring Kitty" stoked animal spirits for meme stocks. GameStop's price peaked at 64.83 on May 15, a 271% rally in just a few days.
But the frenzy faded just as fast. The stock's gain during the week is down to 27%. Anyone who got in late suffered even more. The stock is now down 66% from its high to 22.22. Other investors dumping shares aren't the only ones outfoxing the dumb money. Even the company itself is cashing in.
GameStop plans to sell up to 45 million shares of stock. GameStop would raise about $900 million in total proceeds (assuming $20 per share), says Colin Sebastian at Baird in a note to clients. "With possibly few industry catalysts near-term, it makes sense for GameStop to raise capital opportunistically, as they did during previous updrafts in shares," he said.
But the company's fundamentals are deteriorating. The company lost $1.02 a share in 2023 on an adjusted basis, only slightly better than its $1.14 a share loss in 2022. Revenue is consistently falling each year.
Sebastian says the company now expects first-quarter revenues to be between $872 and $892 million. That's 29% below year-over-year numbers and "$200 million below our (first-quarter) estimate," he said.
Game Over For GameStop?
Investors who got caught up in the meme mania must make a decision. Lock in losses or wait for the redemption story.
It's best to unplug based on data from longtime industry analyst Michael Pachter at Wedbush. His 12-month price target on the stock is just 7 a share. If he's right, that means there's still 68% downside coming. Video game console sales are slowing and disappointing. Meanwhile, new ways to buy games digitally will only erode GameStop's reason to even exist.
Ironically, the dumb money that bought the shares is the company's best hope to avoid death, Pachter said. "Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable," he said.
GameStop Game Over?
| Company | GameStop |
|---|---|
| Symbol | |
| % from high on May 14 | -65.7% |
| $ lost from high ($ billions) | -$13.1 |
