The stock of video game retailer GameStop (NYSE:GME) popped on Tuesday after filings revealed that major shareholder Ryan Cohen has increased his stake in the company. Over the past several months, GameStop has gained as Cohen has built his position. The stock was up 23% as of noon EST.
Cohen was the co-founder of Chewy, a successful pet e-commerce company that's thrived in Amazon's shadow. And his RC Ventures thinks the same can happen with GameStop. In a Nov. 16 letter to management, Cohen called for a strategic review to help the company transition from a brick-and-mortar retailer to a technology company.
In the conference call to discuss third-quarter results, GameStop's management was asked about Cohen's letter. While management didn't seem to directly address his comments, it did say, "we're working to be defined not purely as a console gaming retailer but as disturbing the entire gaming community." This comment sounds in line with Cohen's thoughts.
Except maybe it doesn't go far enough for Cohen. Previously he owned about 10% of GameStop, but he just revealed his stake has increased to 12.9%. In the filing (required by anyone who owns this much of a company's stock), Cohen said he's looking for an "amicable" solution, but also said he won't hesitate to take any actions believed necessary "to protect the best interests of all stockholders."
To summarize, Cohen has a track record of success, and won't hesitate to make sure GameStop is leveraging its business to thrive and create shareholder value. But does this really warrant a 23% pop in the price of the stock? There may be a little more to it.
GameStop remains one of the most shorted stocks on the market. When shorts cover their positions, they have to buy shares, which causes the stock to rise. If the snowball starts rolling downhill fast enough, it's called a short squeeze. And right now, there are so many short-sellers, it would take almost two weeks for everyone to cover. That's a ripe short-squeeze scenario, and it doesn't take much of a push to get it going.
With Cohen vowing to create shareholder value, consider GameStop stock pushed. Short-sellers are undoubtedly reevaluating their short thesis now that Cohen is getting more forceful with GameStop's management.