From nine months ago to last week, retailer GameStop saw its share prices grow from $2.80 to $44.74, an increase of almost 1600%. But from last week through today (as of this article), that price has ballooned by nearly another 750% to $333.81. From promising to shut over 1,000 stores through March 2021 and stop the bleeding to such upward trends, traders and investors are trying to get in on the action before the bubble bursts, assuming it ever does.
Even Tesla’s CEO Elon Musk is getting in on the action, tweeting “Gamestonk!!” and providing a link to the subreddit for the culprits behind all this activity: WallStreetBets.
But not everyone is thrilled with the surge, interestingly Michael Burry. Burry is an investor and hedge fund manager who foresaw the 2008 housing crash and earned millions when he similarly shorted the market. Christian Bale even portrayed him in the film The Big Short. Note that, as of Q3 2020, Burry’s investment firm owned a 2.4% stake in GameStop and also profited from the initial rally.
In a since-deleted Tweet, he wrote, “If I put $GME on your radar, and you did well, I’m genuinely happy for you. However, what is going on now – there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.” But any kind of prosecution is neither easy nor straightforward.
It is hard to question the legality of the whole matter, especially since the information used is publicly available. Any action taken against the WallStreetBets subgroup would be hard to pursue effectively. “If you can actually catch people knowingly passing on fraudulent information, then that is clearly illegal,” said Georgetown Finance Professor James Angel. “If all they are doing is saying, ‘hey, I think this company is a good buy,’ there’s not a lot anybody can do about that.”
According to Bloomberg analyst Matthew Kanterman, “I think it’s fair to say that the market is completely disconnected from GameStop fundamentals here.”J Capital Research co-founder Anne Stevenson-Yang concurs. “Fundamentals are about companies that eventually return the cash to shareholders, usually in terms of dividends, but there’s no way that GameStop is going to do that.”
It would appear that the general expert take is that, while GameStop is currently valuated at over $23 billion thanks to its current hyper-volatility, its actual worth may actually be less than a tenth of that.