What is GameStop?
GameStop is mainly a video game retailer. Other than that, they also sell consumer electronics and gaming merchandise. The company was founded in 1984 in Texas, United States. It was originally named as Babbage’s. Only until 1999, they changed their name to GameStop. Due to the pandemic, it wasn’t doing well since the company highly depends on physical retail space.
What Happened?
In late Summer 2020, Ryan Cohen, the chairman of GameStop, has infused his investment firm along with the company’s capital. This has led to an increase in shares. Some hedge funds predicted that the shares will start to fall around this time.
This led to the company deciding to target of the short-selling. Investors would often use the formula of buying low and selling high. However, the video game retailer decided to do it vice versa, which refers to the term short-selling. What is meant by the term short-seller is they borrow and sell the stock once it hits a high value. Essentially, they are betting that the stock will plummet.
With the hope of the stock price will fall, they are able to buy back the shares, return to the owner and encash the difference. It is most likely that hedge funds are involved in this business. There are a lot of risks that comes within since any company can rally up their stock prices after getting good news. This leaves short-sellers with millions of share that are bought with a higher price and to be returned with an even higher price, exposing them to huge losses.
The stock prices of the video game retailer increased from $16.25 on January 22nd 2021 to $81.25 on January 29th 2021. That is a big increase in the stock price in a short period of time. They have used an unorthodox and a risky method for their stock market. Indeed, it has brought them a big change within the stock market.