Thursday the 25th of February
GameStop is back! Shares in the US retailer doubled in value on Wednesday as an overhaul of the management team brought the stock back to the attention of its global fan base. Interest is building, and the wild price swings may have some way to run, thanks to comments that the departing executive “did not leave willingly”.
A 100% share price move is unheard of for most names, but it’s just a warm-up for GameStop. If there is a return to the volatility levels of January 2020, then speculators will be stepping back into the market and things could snowball.
The Fundamentals of GameStop
The GameStop story began in the Summer of 2020 when online blogger Keith Gill posted an in-depth analysis of its fundamentals on his Roaring Kitty YouTube channel. It’s fair to say that while he marked the stock as undervalued, he didn’t predict it would increase in price by 1,550%.
That blistering price rise was brought about by a short-squeeze in the stock and had ramifications for the broader financial markets as claims and counter-claims of market manipulation spilt over into the mainstream press. Some well-known brokers, such as IG, even restricted trading in GameStop, leaving their clients high and dry.
Those who watched the events unfold took away some important lessons on operational risk. Many also made a mental note to monitor GameStop in case events such as yesterday brought the market back to life.
GameStop’s Management Shake-up
The events of Wednesday run parallel with Gill’s analysis. One of the reasons he tipped the stock for a price rise was the long-overdue overhaul of the management team. In July 2020, Gill said:
“Not to say they’re going to hit it out of the park, that’s not the point. The point is it’s changed.”
On Monday, GameStop announced that Chief financial officer Jim Bell would resign on the 26th of March. Suggestions are that this follows an intervention by activist investors on the Board of Directors, notably Ryan Cohen, who bought into the firm last year. The shake-up suggests the directors want to offer someone else the opportunity to “hit it out of the park.”
That has excited investors as the change could be a catalyst for another share price rally. The legacy of January’s spectacular events is that GameStop has the potential for explosive price moves on the back of relatively minor developments.
How to Trade GameStop
The short answer is in a Demo account. Beginners who are tempted to get involved should be very wary of putting real cash into play.
The volatility of the level seen in GameStop this year is so rarely found that many traders find it hard to acclimatise. A track-record of trading markets that might move a maximum of four per cent in one day is not great preparation for trading GameStop effectively.
There could be value in taking a virtual position and getting an understanding of the emotions involved in trading such a market. These brokers all offer free Demo accounts, which take moments to set up, so just click on the links if you want to follow the events close-up.
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