GameStop Doubles, Then Crashes

A few weeks ago, a former Reddit user surfaced after remaining dormant for the past few years. He was no ordinary user though, his name was Keith Gill, and arguably he was the catalyst that led to Gamestop share price soaring a few years ago, and subsequently triggering rallies in stocks like AMC thereafter.

What started as a legitimate investment thesis on the merits of owning Gamestop morphed into a full-blown battle between hedge funds and retail investors. Gill originally shared a thesis on the merits of owning Gamestop similar to that of Michael Burry, who famously shorted the 2008 property market bust. That investment thesis was rooted in solid fundamentals.

A division took place between those who saw real value in Gamestop and those who saw it financially burdened and potentially on the precipice of going out of business.

It became apparent that many hedge funds had taken the other side of the trade, betting that Gamestop would in fact go bankrupt.

Soon, Gamestop became a focal point for retail traders who saw the opportunity to collectively buy GME stock as an opportunity to “stick it to the man” and trigger massive losses for hedge funds.

While no single retail investor had the power to go up against the much large capital bases of hedge funds, collectively they succeeded, and drove GME share price ever higher, which in turn sparked a virtuous cycle in which hedge funds were forced to buy back their holdings in order to cover their short positions.

Before the storm had subsided, Gamestop had soared to a high of $81 per share back in 2021 and Gill was forced to testify in front of Congress. Then the stock plummeted all the way back to $10 per share and in the intervening years Gill went silent, until recently.

Roaring Kitty Meows Once More

After a period of quiet, Keith Gill re-emerged a few weeks ago under his pseudonym on X (formerly Twitter), posting memes and video clips that broadly were themed with the message “what is he doing?” And indeed followers were left scratching their heads wondering, what is he doing?

Nonetheless, in a world of buy first ask questions later, the cryptic nature of the posts were all his legion of followers needed to buy into Gamestop stock again, and once more it soared.

From the beginning to the middle of May, Gamestop share price climbed from $16 per share to $48 per share, a triple, on speculation that Roaring Kitty was back, and would send the stock higher.

Yet the furore calmed down as the stream of video clips continued but no evidence of an actual position was shared. As a result, Gamestop stock price fell back to $18 per share by the end of the month, yet the stream of posts on Twitter continued.

Then, over this past weekend, it became clear that Gill was back, and in a big way, having built an enormous position in Gamestop once again.

How Big Is Roaring Kitty’s Stake in Gamestop?

The meme rally kicked into high gear yet again when Gill posted a screenshot of his latest position, which includes 5 million GME shares valued at over $115 million in addition to 120,000 call options worth over $65 million, expiring on June 21.

As news spread that Gill was back and all-in on Gamestop, shares soared again, opening on Monday, June 3rd at $40 per share, a virtual double from the prior Friday’s close. 

Unlike the 2021 era momentum that continued to feed upon itself and lead to a frenzy of buying that drove the share price ever higher, Gamestop share price quickly fell to $33 per share within 15 minutes of the open, suggesting a whole lot of selling was taking place to lock in gains.

Was that Gill unloading some of his position to lock in gains and let the rest ride free? We are only left to wonder.

What Is Going on with Gamestop?

Gamestop share price is highly volatile at this time following news that Keith Gill has established a massive position in the stock. The obvious question is should you ride on his coattails and buy the stock too or step aside?

For those, who want the white-knuckle ride of a rollercoaster, holding shares of Gamestop now is likely to provide the adrenaline rush sought.

It’s hard to make any claims that Gamestop is, in fact, worth holding for any conservative-minded Investors, not least because a discounted cash flow forecast analysis pegs fair value at just $13 per share. That would suggest material downside risk to buyers at this time.

With that said, Gamestop is not trading so much based on fundamentals and cash flows as it is sentiment now, and that means it’s a guessing game as to high or low the share price could go from one minute to the next, let alone one day to the next.

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