GameStop Goes Down, Goes Up and Confuses Everyone: Future Predictions for this Frustrating Stock (UPDATE)

Last Updated on June 17, 2021

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GameStop continues to create a tremendous amount of confusion among investors. Buy, sell, ignore? When it comes to GameStop discussions everyone has a different opinion. So who’s right?

In January 2021, in what is known as a short squeeze, the share price of GameStop (NYSE: GME) increased by 1,500%  over a period of two weeks. Its intraday high was $483, on the 29th. This rise was attributed largely to the coordinated buying of participants in Reddit community, r/wallstreetbets.

Elon Musk made a cameo appearance amid the excitement, tweeting an excited “Gamestonk!” and a link to the Reddit board.

The law of gravity soon re-asserted itself. GME spent mid-February trading in a range between $45 and $60, and there were a lot of analyses on solemn websites about who were the winners, who the losers.

Zig-Zagging on the Timeline

In March, there was some news out of the company. GameStop’s executives announced their plan to transform the company from old-fashioned retail game sales into something more 21st century. The transformation, they said, would be led by Ryan Cohen, an activist investor whose success at Chewy (NYSE: CHWY) had given him credibility.  The market certainly found Cohen credible, and the stock price went up, with some zig-zagging but impressively over the course of the month, reaching $190.

GameStop spent April and much of May in that same neighborhood. But the latest excitement kicked off on May 24, on news that GME was going to join the chase for non-fungible tokens (NFT). NFTs are digital assets that can represent specific works of art, music, or real-world moments. They are akin to baseball trading cards in electronic form, and of late they have proven very profitable, though of course this too can be a risky play. Famously, the young woman in the “disaster girl” photo auctioned off an NFT for half a million dollars. If NFT is a gold rush, then there is money to be made selling picks and shovels.

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The market is looking to GameStop to think unconventionally, to think more on the blockchain than on Wall Street, and to think more of online gaming streaming than of the sale of consoles. Photo credit: Shutterstock.com

The news that GME was getting into the NFT business renewed confidence that it was worth investing, and it soared once again, in step-like fashion over the following weeks, passing $300 briefly on June 9.

Amazon Represents Conventional Thinking

Since then, it has headed down, losing much of that ground. At this writing, it is in the environs of $220. The latest fall may have ben a reaction to the new appointees as CEO and CFO — Matt Furlong and Mike Recupero, respectively. Those gentlemen are experienced Amazon executives: but the enthusiasts of GME (the “Reddit Raiders”) seem to have expected choices less conventional, more out-of-left-field.

With all this back and forth: should a wise investor, one not inclined to play games with money, just stay away from the risk? Aren’t there better things to do with one’s time, and money, then to follow these twists and turns?  Is GME just crazy, not just a craze in itself but one whose future depends on other crazes, like that for NFT?

Perhaps. But consider this: the moves we have chronicled have not been random, like those of a discarded piece of paper caught in gusts of wind. They have for the most part expressed a coherent thesis. The market is looking to GME to think unconventionally, to think more on the blockchain than on Wall Street, and to think more of online gaming streaming than of the sale of consoles. The market sees GME as in a good position to do this, and it rewards GME for moves in that direction (as when it elevated Cohen, or showed interest in NFTs). It punishes GME for deviations from that path, for falling back into convention.

Further, if you have a medium-distance investment horizon,  if you are thinking of stocks not day-to-day but month-to-month, then the scary zigs and zags of hours and days seem likely to average themselves out over time. Smoothing all the twists and turns drastically:  GME began the year at roughly $18, and is now above $200. If you believe in the investment thesis outlined above, and you believe that the new guys from Amazon can execute on it: this is a buy.